How much money can you accumulate if you skip the Starbucks and save $4.25 (the

Question

How much money can you accumulate if you skip the Starbucks and save $4.25 (the price of a non-fat, soy-free grandé cafe mocha) every day of the working week and invest the money. Assume that you work on average 22 days per month and you make a monthly deposit of your savings from going Starbucks-free. Further assume that you can avoid the caffeine for the next 35 years that you are working. How much can you accumulate by saving the same amount each month if your investments have a rate of return of 7.5% per year?

Explanation / Answer

Money saved each month would be:

22x 4.25 = $93.5

The interest rate per month would be

0.075/12 = 0.00625

35 years has 420 months

The future value of $93.5 per month for 420 months at the rate of 0.625% per month would be:

93.5 x(1.00625420-1) / 0.00625

$189876.4

The answer is 1st option $189876

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