Question

13. You have started your first job today, and you want to buy a house within 3 years. You are currently saving for the down payment. You plan to save $5,000 the first year. You also anticipate that the amount you save each year will rise by 10% a year as salary increases over time. Interest rates are assumed to be 7% and all savings occur at year end. How much money will you have for a down payment in three years?

Answer 1

Answer:

Total amount = $17659.5

Explanation:

given data

time = 3 year

save = $5000

save each year = 10%

Interest rates = 7%

solution

first year saving  =  $5,000

second year saving = 5,000 + 10% = 5,000 × 1.10 = $5,500

third years saving  =  5500 + 10% = 5,500 × 1.10 = $6,050

so here

return on investment will be as on 1st year is at rate 7 %   for 2 year

amount = $Principal \: (1+ r)^{time}$    ................1

put here value

Amount = 5000 × $(1+0.07)^{2}$      

amount = $5724.5

and

now we get return on investment will be as on 2nd year is at rate 7 %   for 1 year

put value in equation 1

Amount = 5500 × $(1+0.07)^{1}$  

Amount = $5885

so here Total amount is

Total amount = $5724.5 + $5885 + $6050

Total amount = $17659.5