You have $19,250 you want to invest for the next 26 years. You are offered an in

Question

You have $19,250 you want to invest for the next 26 years. You are offered an investment plan that will pay you 7 percent per year for the next 13 years and 11 percent per year for the last 13 years.

How much will you have at the end of the 26 years?

If the investment plan pays you 11 percent per year for the first 13 years and 7 percent per year for the next 13 years, how much will you have at the end of the 26 years?

You have $19,250 you want to invest for the next 26 years. You are offered an investment plan that will pay you 7 percent per year for the next 13 years and 11 percent per year for the last 13 years.

Explanation / Answer

1)We have:

PV = 19,250

Rate for the first 13 years = 7%

Value of investment after first 13 years FV = PV x (1+r)^n

= 19,250 x(1+0.07)^13

=46,389.52

Now this FV will become PV for the next 13 years.

Now rate would be 11% for the next 13 years:

FV = PV x (1+r)^n

= 46,389.52 x (1+0.11)^13

=180,143.49

2)

We have:

PV = 19,250

Rate for the first 13 years = 11%

Value of investment after first 13 years FV = PV x (1+r)^n

= 19,250 x(1+0.11)^13

=74,753.14

Now this FV will become PV for the next 13 years.

Now rate would be 7% for the next 13 years:

FV = PV x (1+r)^n

= 74,753.14x (1+0.07)^13

=180,143.49

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