Time value Personal Finance Problem You can deposit S7,000 into an account payin

Question

Time value Personal Finance Problem You can deposit S7,000 into an account paying 6% annual interest either today or exactly 10years tom today How much better or wil you be at the end of 20 years if you decide to make the iniial deposit today rather thad 10 years from today? The future value at the end of 20 years ifyou deposit S7,000 at 6% today is Sr (Round to the nearest dolar) The future value atthe end of 20 years you deposit S7,000 at 6% 10 years tom today is S? (Round to the nearest dolar) If you invest the $7,000 now instead of waiting for 10 years to make the investment, you would be better off by $(Round to the nearest dollar)

Explanation / Answer

Solution:-

a) Future value if deposited today= $22,450

b) Future value if deposited after 10 years= $12,536

c) He will be better off by $9,914 if deposited today.

Calculations:-

The future value can be calculated as follows :-

            Future value = Present value of deposit *(1+interest rate)years

a) Future value at 20 years if you deposit $7,000 at 6% today .

            Future value = Present value of deposit *(1+interest rate)years

            Future value =$7,000*(1+6%)20

                Future value = $7000*3.207135

            Future value = $22,449.95 i.e. $22,450

Hence the future value at 20 years , if deposited today = $22,450

b) Future value at 20 years if you deposit $7,000 at 6% after 10 years .

Since the amount is to be deposited after 10 years , hence we will get the interest for 10 years only . Hence number of years will be 10 years in the calculation.

Future value = Present value of deposit *(1+interest rate)years

            Future value =$7,000*(1+6%)10

                Future value = $7000*1.790848

                Future value =$12,535.93 i.e. $12,536

Hence the future value after 20 year ,if deposited after 10 year = $12,536

c) We would be better by the following amount.

= Future value if invested today - Future value in invested after 10 years

=$22,450 -$12,536

=$9,914

Please feel free to ask if you have any query in the comment section.

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