Question

You just graduated, and you plan to work for 10 years and then to leave for the austrailian outack bush country. You figure you can save 1000 a year for the first 5 years and 2000 a year for the next 5 years. These savings cash flows will start one year from now. In addition your family has just given you a 10,000 gift. If you put the gift now, and your future savings when they start, into an acount which pays 6.5% compounded annually, what will your financial stake be when you leaave for australia 10 years from now?

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=$10000*(1.065)^10+1000*(1.065)^9+1000*(1.065)^8+1000*(1.065)^7+1000*(1.065)^6+1000*(1.065)^5+2000*(1.065)^4+2000*(1.065)^3+2000*(1.065)^2+2000*(1.065)^1+2000

A=$[10000*1.877137465]+1000*[(1.065)^9+(1.065)^8+(1.065)^7+(1.065)^6+(1.065)^5]+2000*[(1.065)^4+(1.065)^3+(1.065)^2+(1.065)^1+1]

A=$[10000*1.877137465]+(1000*7.800781567)+(2000*5.693640976)

which is equal to

=$37959.44(Approx)