James Johnson, a recent graduate of a nationally recognized MPA program wants to

Question

James Johnson, a recent graduate of a nationally recognized MPA program wants to be able to
travel around the world. James does not have enough money at this time, but believes he can
save up enough money to travel around the world in ten years. If he currently has $15,000 to invest
and estimates he can earn 10% compounded annually on his investment, how much must James
put aside at the end of each of the next ten years in order to accumulate the $100,000 he
anticipates will be needed to fulfill his dream?
Payment to be made

Explanation / Answer

This is a very simple Time Value of Money problem. If you have a financial calculator: N = 10 I/YR = 10 PV = -15,000** FV = 100,000 and solve for PMT which gives you $3,833.36 deposited per year (assuming compounding is done at the END of the year) ** the number is negative because it represents money we paid out If you are using MS Excel: Nper = 10 Rate = 10 PV = -15,000** FV = 100,000 in a separate cell type =pmt(10%, 10, -15000, 100,000) and the same answer as before $3,833.36 deposited per year ** the number is negative because it represents money we paid out If you want to go the long way using paper and pencil.... you've got way too much time on your hands.

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