Question

A father is trying to save for his daughter's wedding in two years. (Long engagement!). He thinks he can make the following contributions to an account: $14,275.00 today and $13,915.00 in one year. The father thinks he can earn 7.00 % in the market each of the next two years. If the wedding is expected to cost $58,985.00 two years from today,how much will he need to contribute at the time of the wedding to cover its cost? Answer Format: Currency: Round to: 2 decimal places.

Answer 1

Future Value of savings at the end of N years=(Savings)*((1+i)^N)

i=Annual interest rate =7%=0.07

Future value of savings today =$14,275*(1.07^2)=

$16,343.45

Future value of savings after one year=$13,915*1.07=

$14,889.05 Total amount available at the end of two years=16343.45+14889.05=$31,232.50

Total amount required =$58,985.00

Amount needed to contribute =58985.00-31232.50=$27,752.50