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Assume that you have decided to save $5000 per year for the next 25 years. If...

Assume that you have decided to save $5000 per year for the next 25 years. If you can earn 9% interest per year on your saving, what will be the value of your wealth in 25 years?

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Answer #1

If we save $5000 each year for next 25 years then for 1st installment of $5000 we have future value after 25 years is 5000(1.09^25) similarly for next installment of $5000 future worth after 25 years from today is 5000(1.09^24) likewise last installment on the begining of 24th year have future worth equals to 5000(1.09)

Future Worth of X after t years when interest rate is "r"=X(1+r)^t

Total Future Worth=5000(1.09)+...+5000(1.09^25)=5000(1.09)(1+...+(1.09^24))

=5000(1.09)((1.09^24-1)/(0.09)

=418504.48

Value of your wealth in 25 years=$418504.48

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