Personal Finance Tax Update
13th Edition
ISBN: 9780357438947
Author: E. Thomas Garman; Raymond Forgue
Publisher: Cengage Learning US
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Textbook Question
Chapter 5, Problem 1DTM
Invest Now or Later? Twins Natalie and Kaitlyn are both age 27. They both live in Warren, Ohio. Beginning at age 27, Natalie invests $2,000 per year for ten years and then never sets aside another penny. Kaitlyn waits ten years and then invests $2,000 per year for the next 30 years. Assuming they both earn 7 percent, how much will each twin have at age 67? (Hint: Use Appendixes A.1 and A.3 or visit the Garman/Forgue companion website.
Expert Solution & Answer
Summary Introduction
To calculate:The future value of the investment of each person.
Introduction: Time value of money is the concept of finance which calculates the effect of time over the value of money. As per this concept the present value of a future amount is lower than the future value. The present value/ future value of an amount is calculated using the interest rate as discount rate.
Answer to Problem 1DTM
The future value of the investment of each person is as follows:
| Future value of investment | |
| N | $ 2,10,350.68 |
| K | $ 7,31,069.92 |
Explanation of Solution
The future value of the investment of each person is calculated as follows:
| N: | |
| Annual investment (A) | $ 2,000 |
| Years of investment (B) | 10 |
| Interest rate (C) | 7% |
| Future value of annuity $1 (7%, 10 years) (D) | 13.8165 |
| Future value after 10 years (E) (A | $ 27,633 |
| Remaining years (F) (67-37) | 30 |
| Future value of lump sum $1 (7%, 30 years) (G) | 7.6123 |
| Future value at the age of 67 (E | $ 2,10,350.68 |
| K: | |
| Annual investment (A) | $ 2,000 |
| Years of investment (B) | 30 |
| Interest rate (C) | 7% |
| Future value of annuity $1 (7%, 30 years) (D) | 94.4608 |
| Future value after 30 years (E) (A | $ 1,88,921.60 |
| Remaining years (F) (67-47) | 20 |
| Future value of lump sum $1 (7%, 20 years) (G) | 3.8697 |
| Future value at the age of 67 (E | $ 7,31,069.92 |
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Chapter 5 Solutions
Personal Finance Tax Update
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