Homework Answers
Savings = 10,000 per year
Rate of interest = 8% per year
I will be doing whole analysis assuming that rate of interest is compounded annually.
Saving in 1st year would be saved realized at the end of year. Thus, it would be saved for 6 years which makes its value to be 10,000 (1 + 0.08)6 = 15,868.74
Saving in 2nd year would be saved realized at the end of year. Thus, it would be saved for 5 years which makes its value to be 10,000 (1 + 0.08)5 = 14,693.28
Saving in 3rd year would be saved realized at the end of year. Thus, it would be saved for 4 years which makes its value to be 10,000 (1 + 0.08)4 = 13,604.88
Saving in 4th year would be saved realized at the end of year. Thus, it would be saved for 3 years which makes its value to be 10,000 (1 + 0.08)3 = 12,597.12
Saving in 5th year would be saved realized at the end of year. Thus, it would be saved for 2 years which makes its value to be 10,000 (1 + 0.08)2 = 11,664
Saving in 6th year would be saved realized at the end of year. Thus, it would be saved for 1 years which makes its value to be 10,000 (1 + 0.08)1 = 10,800
Saving in 7th year would be saved realized at the end of year. Thus, it would be saved for 0 years which makes its value to be 10,000 (1 + 0.08)0 = 10,000
Sum of all savings = 15,868.74 + 14,693.28 + 13,604.88 + 12,597.12 + 11,664 + 10,800 + 10,000
= 89,228.02
Industrial enginner would have 89,228.08 after 7 years.
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