Dr. Pickens wants to buy a burger chain. He currently has $25,000. He needs to h

Question

Dr. Pickens wants to buy a burger chain. He currently has $25,000. He needs to have $64,000 in five years. He can earn 10% compounded annually if he saves money at the beginning of the year how much can you save per year to meet his goal? Dr. Pickens wants to buy a burger chain. He currently has $25,000. He needs to have $64,000 in five years. He can earn 10% compounded annually if he saves money at the beginning of the year how much can you save per year to meet his goal? Dr. Pickens wants to buy a burger chain. He currently has $25,000. He needs to have $64,000 in five years. He can earn 10% compounded annually if he saves money at the beginning of the year how much can you save per year to meet his goal?

Explanation / Answer

Answer:

Current amount available = $25,000

Amount required at the end 5 years = $64,000

Rate of interest, compounded annually = 10%

Future value of $25,000 after 5 years = $25,000 * (1 + 10%) 5 = $40,262.75

Balance amount required at the end of year 5 = $64,000 - $40,262.75 = $23,737.25

If Rate of annual interest = R, Number of years = N then,

FV of $1 annuity in advance = {(1 + R) N - 1} / R * (1 +R) = [{(1 + 10%) 5 - 1} /10%] * (1 + 10%) = 6.71561

Hence amount required to be saved at the beginning of each year

= $23,737.25 / 6.71561

= $3,534.64

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