Time value Personal Finance Problem You can deposit $12.000 into an account payi

Question

Time value Personal Finance Problem You can deposit $12.000 into an account paying 12% annual interest ether today or exactly 5 years from today How much better off will you be at the end of 30 years if you decide to make the initial deposit today rather than 5 years from today? The future value at the end of 30 years if you deposit $12.000 at 12% today is S Round to the nearest dollar) The future value at the end of 30 years if you deposit $12,000 at 12% 5 years fom today (Round to the nearest dollar) If you invest the $12,000 now instead of waiting for 5 years to make the investment, you would be better off by (Round to the nearest dollar)

Explanation / Answer

Solution part 1:

Investment for total 30 years

Future value1 = Present value x (1+Rate)^ Years

Future value1 = $12000 x (1+12%)^30

Future value1 = $359,519

Solution part 2:

Investment for 25 years (since investment starts after 5 years)

Future value2 = Present value x (1+Rate)^ Years

Future value2 = $12000 x (1+12%)^25

Future value2 = $204,001

Solution part 3:

How much we are better if we would have invested for total 30 years vs 25 years (late by 5 years)

Better off by = Future value1 - Future Value2

Better off by = $359,519 - $204,001

Better off by = $155,518

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