Question
A young BS-graduate from a California university engineering college went to work for a company at the age of 22 and placed $50 per month
A young BS-graduate from a California university engineering college went to work for a company at the age of 22 and placed $50 per month into the stock purchase option. He left the company after a full 60 months of employment at age 27, and he did not sell the stock. The engineer did not inquire about the value of the stock until age 57, some 30 years later.
1. Construct the cash flow diagram for ages 22 through 57.
2. The engineer has learned that over the 35 intervening years, the stock earned at a rate of 1.25% per month. Determine the value of the $50 per month when the engineer left the company after a total of 60 purchases.
3. Determine the value of the engineers company stock at age 57. Again, observe the significant difference that 30 years have made at a 15% per year compound rate.
4. Assume the engineer did not leave the funds invested in the stock at age 27. Now determine the amount he would have to deposit each year, starting at age 50, to be equivalent to the value at age 57 you calculated in (3) above. Assume the 7 years of deposits make a return of 15% per year.
5. Finally, compare the total amount of money deposited during the 5 years when the engineer was in his twenties with the total amount he would have to deposit during the 7 years in his fifties to have the equal and equivalent amount at age 57, as determined in (3) above.
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