after graduation, John plans to work for ABC co for 12 years and then start his

Question

after graduation, John plans to work for ABC co for 12 years and then start his own business. he expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6) and $15,000 annually for the following 6 years (t =7 through t =12). the 1st deposit will be made a year from today. in addition, family just gives him $25,000 graduation gift which he will deposit immediately (t =0). if the accounts earns 9% compounded annually, how much will he have when he starts his business 12 years from now.

Explanation / Answer

after the end of 1 year amount = 25000*1.09 =27250

7500 added

2nd year = (27250+7500)*1.09 = 37877.5

at the end of 12 years amount = 25000(1.09)12 + 7500 {(1.09)11 +1.0910+......1.096) + 15000(1.095 + .....1.09 +1)

=70316 + 94630 + 112850

=277796

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