Question

To your good fortune, your crazy aunt died and left you $200,000.  She also left a fund to provide for her dogs, there are three and they have needs.  You estimate the dog bill to be $1,500 month for 5 yrs.  The dog boarder offers a discount rate of 6.0% APR for early payment (use to discount). Assume you prepaid for Dog care today and invested the rest of the money at 7.0% EAR (m = 1) for 20 years.  What is your account balance at the end of year 20?

Answer 1

Amount payable to the dog boarder = $ 1500 12 months 5 years

Amount payable to the dog boarder = $ 90,000

Discount offered by the dog boarder = $ 90000 0.06 = $ 5400

Actual amount paid to dog boarder = $ 90,000 - $ 5400 = $ 84600

Amount left for investment = $ 200,000 - $ 84600 = $ 115,400

Account balance at end of 20 years is found using the following equation

Account balance at the end of 20 years = $ 446,561.6 $ 446,562