Time value Personal Finance Problem You can deposit $13,000 into an account payi

Question

Time value Personal Finance Problem You can deposit $13,000 into an account paying 7% annual interest either today or exactly 5 years from today. How much better off will you be at the end of 25 years if you decide to make the initial deposit today rather than 5 years from today? The future value at the end of 25 years if you deposit $13,000 at 7% today is $. (Round to the nearest dollar.) The future value at the end of25 years if you deposit $13,000 at 7% 5 years from today is $. (Round to the nearest dollar.) If you invest the $13,000 now instead of waiting for 5 years to make the investment, you would be better off by $. (Round to the nearest dollar.)

Explanation / Answer

Future value if $13,000 is deposited today = $13,000 * 1.0725 = $70,557

Future value if $13,000 is deposited 5 years from today = $13,000 * 1.0720 = $50,306

Amount gained by investing today = $70,557 - $50,306 = $20,251

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