In: Finance
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?
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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