Question

After graduation, you plan to work for Donald's Fashion Co. For seven years and then start your own business. You expect to save and deposit $10,000 a year for the first three years (t=1 through t=3) and $14,000 annually for the four years after (t=4 through t=7). The deposits are made at the end of each year, with the first deposit being made a year from today. In addition, your grandfather just gave you a $40,000 graduation gift which you will deposit immediately (i.E. T=0). If the account earns 8% compounded annually, how much will you have saved when you start your business seven years from now?

Answer 1

The amount that will you have saved when you start your business seven years from now is $175,805

Step-by-step explanation:

In order to calculate the amount that will you have saved when you start your business seven years from now we would have to calculate the Future Value from the deposit since the year 0 to year 7 as follows:

Future value of year 0 with deposit of $40,000 and rate 8%=PV(1+r)∧t

Future value of year 0 with deposit of $40,000 and rate 8%=$68,552.97

Future value of year 1 with deposit of $10,000 and rate 8%=$15,868.74

Future value of year 2 with deposit of $10,000 and rate 8%=$14,693.28

Future value of year 3 with deposit of $10,000 and rate 8%=$13,604.89

Future value of year 4 with deposit of $14,000 and rate 8%=$17,635.97

Future value of year 5 with deposit of $14,000 and rate 8%=$16,329.60

Future value of year 6 with deposit of $14,000 and rate 8%=$15,120.00

Future value of year 7 with deposit of $14,000 and rate 8%=$14,000.00

Therefore, amount that will you have saved=$68,552.97 + $15,868.74 + $14,693.28+$13,604.89+$17,635.97+$16,329.60+$15,120.00+$14,000.00

amount that will you have saved=$175,805

The amount that will you have saved when you start your business seven years from now is $175,805