You just graduated, and you plan to work for 10 years and then to leave for the Australian "Outback" bush country.You figure you can save $1,000 a year for the first 5 years and $2,000 a year for the next 5 years.These savings cash flows will start one year from now.In addition, your family has just given you a $5,000 graduation gift.If you put the gift now, and your future savings when they start, into an account which pays 8 percent compounded annually, what will your financial "stake" be when you leave for Australia 10 years from now?

Question

Quizplus · Accepted Answer

Solution using NFV Note: Some calculators do not have net future value function.Cash flows can be grouped and carried forward or PV can be used; see alternative solution below.Inputs: 11ea84e4_0fb9_b504_9a63_a7525784500b_TB1651_11 = 5,000; 11ea84e4_0fb9_dc15_9a63_29b2b9c5c35c_TB1651_11 = 1,000; N₁ = 5; 11ea84e4_0fb9_dc16_9a63_d5353191f3d3_TB1651_11 = 2,000; N₂ = 5; I = 8.Output: NFV = $31,147.79 ≈ $31,148.Alternative solution: calculate PV of the cash flows, then bring them forward to FV using the interest rate.Inputs: 11ea84e4_0fba_0327_9a63_25f4587b99d4_TB1651_11 = 5,000; 11ea84e4_0fba_0328_9a63_63ba179f6f48_TB1651_11 = 1,000; N₁ = 5; 11ea84e4_0fba_0329_9a63_07a24dcc38b4_TB1651_11 = 2,000; N₂ = 5; I = 8.Output: PV = $14,427.45.Inputs: N = 10; I = 8; PV = −14,427.45.Output: FV = $31,147.79 ≈ $31,148.

You Just Graduated, and You Plan to Work for 10