Question

Emma's family has given her $54021 and today she has decided to put that money in a savings account that yields 4% per year. However, she already knows that one year from today she will have to use part of that money to pay for a $11760 expense, and another expense of $27471 two years from now. If she is planning to collect whatever is left in your savings account 4 years from today, how much money will you be able to withdraw at that time (maximum value)?

Answer 1

This question requires application of basic time value of money function which is: FV = PV * (1 + r)ⁿ

For the first year,

FV = $54021 * (1 + 4%)¹

FV = $56,181.84

Now, she withdraws $11,760.

So the amount in account = $56,181.84 - $11,760 = $44,421.84

Now, in second year,

FV = $44,421.84 * (1 + 4%)¹

FV = $46,198.71

Now she withdraws $27,471.

So amount in account = $46,198.71 - $27,471 = $18,727.71

Now, this amount would stay as it is in saving account for 2 years.

FV = $18,727.71 * (1 + 4%)²

FV = $20,255.90 ---> Maximum withdrawable amount.