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Jenny Lopez estimates that as a result of completing her master’s degree, she will earn an additional $10,000 a year for...

Jenny Lopez estimates that as a result of completing her master’s degree, she will earn an additional $10,000 a year for the next 30 years.

(a) What would be the total amount of these additional earnings?

(b) What would be the future value of these additional earnings based on an annual interest rate of 8 percent? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to the nearest whole number.)

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Answer #1

a)

total value of additional earnings

= 10000 * 30

= 30000

b)

Future value of annuity= payment per period * [(1+i)^n-1]/i

i = interest rate per period

n = number of periods

=>

Future value = 10000 * [(1+8%)^30 - 1]/8%

= 1132832

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