Question

Jazmin a college graduate has in saving account $6,974 by the end of her first year of work.

Using an interest rate of 5%, calculate:

1. How much money will Jazmin have the end of year 12 if she keeps saving the same amount every year. Draw the cash flow diagram and calculate.

2. How much money will she have at the end of year if she keeps saving the same amount every, year and she buys a car for $7,000 cash at the end of year 6.

Draw the cash flow diagram and calculate.

3. If Jazmin decides to increase her initial funds by 3% for every subsequent year ...   until the end of year 12). How much money will she have at the end of year 12? Draw the cash flow diagram and calculate,

4. If Jazmin decides to increase her initial $6,974 by $500 for every subsequent year ... until the end of year 12). How much money will she have at the end of year 12? Draw the cash flow diagram and calculate,

Answer 1

i. FW of account = 6974 * (F/A,5%,12)

= 6974 *15.917127

= 111006.04

CFD

ii.

FW of account = 6974 * (F/A,5%,12) - 7000*(F/P,5%,6)

= 6974 *15.917127 - 7000 *1.340096

= 101625.37

CFD

iii.

Future worth of geometric series = A *[(1+i)^n - (1+g)^n] /(i-g)

Future worth of savings = 6974 *[(1+0.05)^12 - (1+0.03)^12] /(0.05-0.03)

= 6974 *[(1.05)^12 - (1.03)^12] /(0.02)

= 6974 * 18.50477196

= 129052.28

CFD

iv.

FW of account = 6974 * (F/A,5%,12) + 500*(F/G,5%,12)

= 6974 *15.917127 + 500 *78.342530

= 150177.31

CFD