Question

5. You plan to open a business in 10 years. Today you have $5,000 in the bank and plan to put in $600 every month for the next 3 years. You think you will be able to put in $1000 per month for the last 7 years. How much will you have at the end of 10 years if you can earn 7.5% on your money?

Answer 1

Using financial calculator for all calculations

In the first 3 years,when he deposits $600 per month

Inputs : pmt = -600 (every month)

I/y = 7.5% /12 = 0.6250% ( monthly)

Pv = -5000

N = 3 × 12 = 36 ( monthly)

Fv = compute

We get, FV = $ 30,396.06

So the value after first 3 years is $ 30,396.06 in bank.

Now for the next 7 years

Input : Pv = -30,396.06

Pmt = - 1,000

I/y = 7.5% / 12 = 0.625% ( monthly)

N = 7 × 12 = 84 ( monthly)

Fv = compute

We get, FV = $161,331.277

So the value in bank after 10 years is $ 161,331.277