Question

1. If you are earning a salary of $47,000 in 2019 and expect to receive 4% raises per annum on January 1, what do you anticipate your salary will be in 2027? What is the future value of a single $5,000 investment made today invested for 12 years at 8.3% compounded annually? You hope to buy your dream car 5 years from now. Today, that car costs $71,000 but industry experts project that prices will increase by an average of 3.25% per year over the next 5 years. How much will your dream car likely cost by the time you are ready to buy it?

Answer 1

Current Salary = PV = $47000

Increase in Salary per year = g = 4%

Number of Years till 2027 = n = 8 years

Salary in 2027 = FV = PV(1+r)ⁿ = 47000(1+0.04)⁸ = $64322.75

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Investment made today = PV = 5000

Interest Rate = r = 8.3%

Number of Years = n = 12

FV = PV(1+r)ⁿ = 5000(1+0.083)¹² = $13017.02

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Cost of the car now = PV = $71000

Rate of increase in car rate = r = 3.25%

Number of years = 5

Future Value of the car after 5 years = FV = PV(1+r)ⁿ = 71000(1+0.0325)⁵ = $83312.21