Question

After graduation, you plan to work for Rocket Corporation for 13 years and then start your...

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?

Homework Answers

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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