Question

Jenny Lopez estimates that as A result of completing her masters degree, she will earn an additional 8000 a year for the next 40 years what would be the total amount of these additional earnings? What would be the future value of these additional earnings based on an annual interest rate of 6%?

Answer 1

Part A.

Since she will earn an additional $8,000 per year, then after 40 years she will have

`\text{ \$8,000}*40=\text{ \$ 320,000}`

So, the total amount of the additional earning is $320,000

Part B.

In this case, we need to use the compound interest formula, given by

`A=P(1+(r)/(n))^(n\cdot t)`

where A is the future value, P is the present value, r is the annual interest rate, n is the number of compounding periods per year and t is the time. In our case,

`\begin{gathered} P=\text{ \$320,000} \\ r=0.06 \\ n=1 \end{gathered}`

Then, by substituting these values into the formula, we have