Jackie plans to open her own bookstore in 10 years. To raise the "seed" money, she has committed the $10,000 she now has in a mutual fund. In addition, she plans to save $2,000 per year (end of year) for the next 5 years and $3,000 per year (end of year) for the following 5 years. How much "seed" money will Jackie have in 10 years if the investments earn 10 percent per year compounded annually?

Question

Quizplus · Accepted Answer

To solve this problem, we can use the future value formula for a series of payments:

FV = PMT x [(1 + r)^n - 1]/r

where FV is the future value, PMT is the annual payment, r is the annual interest rate, and n is the number of periods.

First, we can find the future value of the $10,000 investment after 10 years:

FV1 = $10,000 x (1 + 0.10)^10 = $25,937.42

Next, we can find the future value of the annual payments of $2,000 for the first 5 years:

FV2 = $2,000 x [(1 + 0.10)^5 - 1]/0.10 = $12,806.85

Finally, we can find the future value of the annual payments of $3,000 for the next 5 years:

FV3 = $3,000 x [(1 + 0.10)^5 - 1]/0.10 = $19,180.28

The total future value of all the payments is:

FV = FV1 + FV2 + FV3 = $25,937.42 + $12,806.85 + $19,180.28 = $57,924.55

Therefore, Jackie will have $57,924.55 in "seed" money for her bookstore after 10 years. The closest option is B) $63,925, which is within the range of the calculated value.

Jackie Plans to Open Her Own Bookstore in 10 Years