Question
Mark Johnson saves a fixed percentage of his salary at the end of each year. This year he saved $1500. For the next 5 years,
Mark Johnson saves a fixed percentage of his salary at the end of each year. This year he saved $1500. For the next 5 years, he expects his salary to increase at an 8% annual rate, and he plans to increase his savings at the same 8% annual rate. He invests his money in the stock market. Thus there will be six end-of-year investments (the initial $1500 plus five more). Solve the problem using the geometric gradient factor.
(a) How much will the investments be worth after the 6th payment (5 years from the present) is made if they increase in the stock market at a 10% annual rate?
| A. | $2204 | |
| B. | $5121 | |
| C. | $7818 | |
| D. | $13853
|
(b) How much will Mark have after all 6 payments are made (5 years from the present) if his stock market investments increase only at 8% annually?
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Financial Management For Nonprofit Human Service Organizations
Authors: Raymond Sanchez Mayers
2nd Edition
0398075131, 9780398075132
