Question

You want to make plans to travel the world like you've always dreamed. base on your calculations you estimate this trip will cost J$1,800,000 for air bnb accommodation, plane ticket and other adventures and could be done in a six week period. You plan to take this trip in seven year’s time, starting during your pre-retirement leave in January 2018. You intend to start building this travel fund in January 2011, and will continue until December 2017.

Your plan is to invest your entire gratuity payment every year starting January 1, 2011. You estimate that your gratuity payment will be $80,000 this year, and will increase by 5% per year after that. Every January until 2017 you plan to open a new certificate of deposit with the entire bonus. You don’t intend to withdraw any of these funds until the end of December 2017. What will be the total amount in these accounts in December 2017, if the average expected return on each account is 12% per year?

Answer 1

Solution

Future value of an investment= Investment*(1+r)^n

Where r= interest rate=12% in this case

n= number of compounding periods

Also, the investment will increase by 5%

Calculations for Future value of investment given below

Also, the investment is made at the beginning of each year i.e it is an annuity due

Excel formula

Therefor total amount in the account on December 2017 will be 1028583.66

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