Question

In: Finance

Your gross annual salary is $45,000. Your boss is going to give a $2,000 a year...

  1. Your gross annual salary is $45,000. Your boss is going to give a $2,000 a year raise for this year and also for the next 2 years.
    1. Suppose you invest your $2,000 first year raise every year for twenty years, and you get a 10% annual return on it. How much will it have grown to in 20 years? (Use the ordinary annuity formula.)

Solutions

Expert Solution

A/c balance after 20 years P×[(1+r)^n-1]÷r
Here,
A Interest rate per annum 10.00%
B Number of years                                                      20
C Number of payments per per annum                                                        1
A÷C Interest rate per period ( r) 10.00%
B×C Number of periods (n) 20
Payment per period (P) $                                            2,000
A/c balance after 20 years $               114,550
2000×((1+10%)^20-1)÷10%

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