Andy has a job and will be paid for $70,000 his year. Assume Andy receives a 3%

Question

Andy has a job and will be paid for $70,000 his year. Assume Andy receives a 3% raise next year and continues receiving an annual raise of 3% for 8 additional years. If Andy invests 15% of his salary each year and earns an annual rate of 5%, the cumulative equivalent value at the end of his 10 investments is close to

4, Andy has a Job and will be paid $70,000 this year. Assume Andy receives a 3% raise next year and continues receiving an annual raise of 3% for 8 additional years. If Andy invests 15% of his salary each year and earns an annual rate of 5%, the cumulative equivalent value at the end of his 10 investments is closest to (5) a) $157,061 $149,623 $142,457 d) $135,922 e) $142,680 f) $129,414 g) $455,707

Explanation / Answer

4.

Correct Answer:

B.

Working note:

Investment (first year) P = 70000*15% = $10500

g = 3%

R = 5%

Time = 10 years

Then,

Future value = P*((1+R)^n - (1+g)^n)/(R-g)

Future value = 10500*(1.05^10 - 1.03^10)/(.05-.03)

Future value = $149613.6 (it is closest to $149623)

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