Question

You expect to receive $14,000 at graduation in two years. You plan on investing it at 12 percent until you have $110,000. How long will you wait from now? (Do not round your intermediate calculations.)

Answer 1

The number of years is computed as shown below:

Future value = Present value x (1 + r)ⁿ

$ 110,000 = $ 14,000 x (1 + 0.12)ⁿ

($ 110,000 / $ 14,000) = 1.12ⁿ

Taking log both sides, we get:

log 7.857142857 = n log 1.12

2.061423036 = n x 0.113328685

n =  2.061423036 / 0.113328685

n = 18.19 years Approximately

So, the number of years to wait will be as follows:

= 18.19 + 2

= 20.19 years

Feel free to ask in case of any query relating to this question