Question

Jane wants to buy a mountain cabin for her retirement. She recently came into an inheritance of $250,000. She estimates that the cabin she wants will cost $400,000 when she retires in 5 years.  If she is able invest her inheritance to earn an annual rate of 8% (compounded annually), will she have enough to buy her cabin in 5 years?

Answer 1

Amount inherited by jane which she invested= $250,000

Calculating the Future Value at the end of year 5of amount inherited:-

Future Value = Invested Amount*(1+r)^n

Where,

r = Interest rate = 8%

n= no of periods = 5 years

Future Value = $250,000*(1+0.08)^5

Future Value = $250,000*1.4693280768

Future Value = $367,332.02

Th Future value at the end of year % is $367,332.02 which is less than what i required to jane of $400,000

Thus, she does not have enough to buy her cabin in 5 years

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating