you just graduated, and you plan to work for 10years and then to leave for the A

Question

you just graduated, and you plan to work for 10years and then to leave for the Australian"outback" bush country. You figure you can save $1,000 a year for the first 5 years and $2,000 a year for the next 5 years. These savings cash flows will start one year from now. In addition, your family has just giving you a $5,000 graduation gift. If you put the gift now, and your future savings when they start, into an account which pays 8 percent compounded annually, what will your financial"stake" be when you leave for Australia 10 years from now?

Explanation / Answer

Calcualting the future value of the deposit after 5 years: The formula for calculating the future value of annuity is FVt = C x [(1+r)^t - 1 ] / r where C is the coupon payment r is the interest rate t is the number of periods Another way of calculating the future value of annuity is by using excel sheet: Step1: Go to excel and click "insert" to insert the function Step2: Select the "FV" function as we are finding the future value of annuity in this case Step3: Enter the values as Rate = 8%; Nper = 5; PMT = 1000; PV = 5000 Step4: Click "OK" to get the desired value. The value comes to "$13,213" Therefore, the future value of annuity after 5 years is $13,213 This future value of annuity becomes present value for the next 5years. Step1: Go to excel and click "insert" to insert the function Step2: Select the "FV" function as we are finding the future value of annuity in this case Step3: Enter the values as Rate = 8%; Nper = 5; PMT = 2000; PV = 13213 Step4: Click "OK" to get the desired value. The value comes to "$31,147" Therefore, the future value of annuity after 10 years is $31,147

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.