After graduation, you plan to work for Mega Corporation for 10 years and then st

Question

After graduation, you plan to work for Mega Corporation for 10 years and then start your own business. You expect to save $5,000 a year for the first 5 years and $10,000 annually for the following 5 years, with the first deposit being made a year from today. In addition, your grandfather just gave you a $20,000 graduation gift which you will deposit immediately. If the account earns 8% compounded annually, how much will you have when you start your business 10 years from now?

$185,976

$116,110

$217,513

$144,944

$128,349

Explanation / Answer

For 1st 5 years,

FV = (rate,nper,pmt,pv)

rate = 8%

nper = 5

pmt = 5000

pv = 20000

FV = (8%, 5,5000,20000) = $58,720

For next 5 years,

FV = (8%, 5,10000,58720)

= $144,944

Therefore, 4th option is correct.

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