A civil engineer planning for her retirement places 10% of her salary each year into a...
A civil engineer planning for her retirement places 10% of her salary each year into a high-technology stock fund. If her salary this year (end of year 1) is $180,000 and she expects her salary to increase by 5% each year, what will be the future worth of her retirement fund after 13 years provided it earns 5% per year?
Homework Answers
Salary at the end of year 1 = $180,000
He will be planning to put 10% of the salary in stock fund.
Yearly deposit will be = $180,000 * 10% = $18,000
Salary is increasing by 5%. Therefore, the yearly deposit in stock fund also increases by 5%.
Calculate the Future value of the retirement fund at the end of 13th year.
Interest Rate = 5%.
Otherwise, what is the future value of the retirement fund.
This the case of geometric gradient cash flow and here the gradient is equal to the rate of interest. In this condition where the gradient = interest, use the following formula to calculate the present value of the cash flows.
PW = A1 [N ÷ (1 + i)]
PW = $18,000 [13 ÷ (1 + 0.05)]
PW = $222,857
Now calculate the Future Value.
FV = PW (F/P, 5%, 13)
FV = $222,857 (1.88565)
FV = $420,230
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