Question

After graduation, you plan to work for Rocket Corporation for 13 years and then start your own business. You expect to save and deposit $7,000 a year for the first 6 years (t = 1 through t = 6) and $12,500 annually for the following 7 years (t = 7 through t = 13). The first deposit will be made a year from today. In addition, your mother just gave you a $20,00 graduation gift as an incentive to work hard which you will deposit immediately (t = 0). If the account earns 6.5% compounded annually, how much will you have when you start your business 13 years from now?

Answer #1

Cashflows happenning at the end of the year.

Year0=20000*(1+6.5%)^13=45349.75

Year1=7000*(1+6.5%)^12=14903.67 and so on.....

Year12=12500*(1+6.5%)=13312.50

Year13=12500=12500

Add all these values to find Future value=$228,724.19

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Year0 | 20000 | 45349.75 |

Year1 | 7000 | 14903.67 |

Year2 | 7000 | 13994.06 |

Year3 | 7000 | 13139.96 |

Year4 | 7000 | 12337.99 |

Year5 | 7000 | 11584.97 |

Year6 | 7000 | 10877.91 |

Year7 | 12500 | 18239.28 |

Year8 | 12500 | 17126.08 |

Year9 | 12500 | 16080.83 |

Year10 | 12500 | 15099.37 |

Year11 | 12500 | 14177.81 |

Year12 | 12500 | 13312.50 |

Year13 | 12500 | 12500.00 |

Future Value | 228724.19 |

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