Question

(Growth annuity) Michael has just signed a professional basketball contract where he will earn $2,500,000 the first year and will receive a 5% annual increase every year for 10 years. He plans to save 50% of his annual salary each year in a mutual fund where he expects to earn 16% annually. How much will she have in his savings after 10 years.

Please show all work in excel, thank you!

Answer 1

Yr	Base Income/PY Income	5% Growth over PY Income	Increased Income Base	Investment in MF (50% of Income)	Invested Period	Future Value at Yr 10
1	2,500,000		2,500,000	1,250,000	9	$4,753,702
2	2,500,000	125,000	2,625,000	1,312,500	8	$4,302,920
3	2,625,000	125,000	2,750,000	1,375,000	7	$3,886,052
4	2,750,000	131,250	2,881,250	1,440,625	6	$3,509,933
5	2,881,250	137,500	3,018,750	1,509,375	5	$3,170,203
6	3,018,750	144,063	3,162,813	1,581,406	4	$2,863,356
7	3,162,813	150,938	3,313,750	1,656,875	3	$2,586,210
8	3,313,750	158,141	3,471,891	1,735,945	2	$2,335,888
9	3,471,891	165,688	3,637,578	1,818,789	1	$2,109,795
10	3,637,578	173,595	3,811,173	1,905,586	-	$1,905,586
		1,311,173		15,586,102		$31,423,646
Formula	Rate or Return			16%
	FV = PV * (1+ROR)^(No of Yrs Invested)