After graduation, you plan to work for Dynamo Corporation for 12 years and then

Question

After graduation, you plan to work for Dynamo Corporation for 12 years and then start your own business. You expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6) and $15,000 annually for the following 6 years (t = 7 through t = 12). The first deposit will be made a year from today. In addition, your grandfather just gave you a $25,000 graduation gift which you will deposit immediately (t = 0). If the account earns 9% compounded annually, how much will you have when you start your business 12 years from now?

Explanation / Answer

sol: here are three different deposits being made:- (a) Deposit of $25,000 for 12 years at 9% Future value of this deposit = $25,000 x 2.81267 = $70,316.75 (b) Deposit of $7,500 annually for 12 years at 9%. Future value of annuity = $7,500 x 20.14072 = $151,055.40 (c) Deposit of $7,500 annually for 6 years from 7th year to 12th years at 9%. Future value of annuity = $7,500 x 7.52334 = $56,425.05 Total Future value = 70,316.75 + 151,055.40 + 56,425.05 = $277,797.20

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