Liam Dreams of starting his own business to import consumer electronic products

Question

Liam Dreams of starting his own business to import consumer electronic products to his home country. He estimates he can earn 5% on his investment and that he will need to have $300,000 at the end of year 10 if he wants to give his business a good solid foundation. He now has $28,850 in his account, and he believes he can save $12,000 each year from his income, beginning now. He plans to marry at about the end of year 6 and will skip the investment contribution that year. How far below or above his $300,000 goal will he be?

Explanation / Answer

Hi,

Please find the answer as follows:

Future value of initial investment = 28850*(1+.05)*10 = 46993.7

Future value of all annual payments = 12000*(1+.05)^10 -1/.05

= 150934.71

Since 6th payment will not be made, a deduction of 14586.07 will be made.

So future worth would be = 183041

Resulting in a shortage of = 300000 - 183041 = 116959

Thanks

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