Question

A poor, elderly, allergy ridden, history professor, trying to save money and survive on a modest salary is considering moving from his roach infested, inner city apartment to a small trailer in the East County.   The professor has gathered the following data.

Data	Inner City	East County
Cost of Move	$0	$200
Monthly Rental	$275	$120
Monthly Transportation Cost	$30	$80
Monthly Utilities	$40	$50

Assuming a nominal annual interest rate of 9%, how much money could this professor accumulate in the bank at the end of a five year period if he moves to the East County and saves the cost difference between that residence and his (roach infested) present location?

Answer:__________________

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Answer 1

Incremental cost of moving = 200

Incremental monthly rental (East - Inner) = 120 - 275 = -155 (monthly savings)

Incremental monthly transportation cost (East - Inner) = 80 - 30 = 50

Incremental monthly utilities (East - Inner) = 50 - 40 = 10

Net savings per month = 155 - 50 - 10 = 95

i = 9% /12 = 0.75% per month

t = 5 * 12 = 60 months

Future worth of account = -200*(F/P,0.5%,60) + 95*(F/A,0.5%,60)

= -200*1.34885 + 95*69.770031

= 6358.38 ~ 6358 (Nearest Dollar)