Exercise C-2 Calculate the future value of a single amount (LOC-2) You want to s

Question

Exercise C-2 Calculate the future value of a single amount (LOC-2) You want to save for retirement. Assuming you are now 30 years old and you want to retire at age 55, you have 25 years to watch your investment grow. You decide to invest in the stock market, which has earned about 12% per year over the past 80 years and is expected to continue at this rate. You decide to invest $1,000 today Required: How much do you expect to have in 25 years? (FV of $1, PV of $1 FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.) Future value

Explanation / Answer

Ex. C-2

Working:

Future value of $1 invested at 12% for 25 years is (1+12%)^25 = 1.12^25 = 17.00

Future value of $1000 invested @12% for 25 years = $17,000

Ex. C-7

Working:

Future Value of a periodic payment P, for n periods at r% is given by

FV = P ((1+r)^n-1)/r)  

For our question P = 2,000 , n = 30 , and r=10%,

FV = 2,000 x ((1+0.10)^30-1)/0.10 = 2000 x (17.4494 -1)/0.10 = $2,000 x 164.494 = $328,988

Future Value $17,000

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