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