Question

Jenny Lopez estimates that as a result of completing her master’s degree, she will earn an additional $10,000 a year for the next 30 years.

(a) What would be the total amount of these additional (b) What would be the future value of these additional earnings based on an annual interest rate of 8 percent? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to the nearest whole number.).

Answer 1

Answer:

(a) $300,000

(b) $1,132,750

Explanation:

Given:

Per year amount received = $10,000

Number of year = 30

Rate = 8% = 0.08

Total Additional amount :

Additional amount = $10,000 × 30 = $300,000

Future value:

Future value =$PMT[\frac{(1+r)^n-1}{r} ]$

$10,000[\frac{(1+0.08)^{30}-1}{0.08} ]\\10,000[\frac{(1.08)^{30}-1}{0.08} ]\\10,000[\frac{10.062-1}{0.08} ]\\10,000[\frac{9.062}{0.08} ]\\10,000 \times113.275\\1,132,750$

Future value is $1,132,750