3. Hari Seldon is planning for his retirement 6 years from now. He plans to deposit $30000 each year for 6 six years (i. e., 6 deposits in years 1-6) in a bank that offers a savings rate of 10% per year. Hari Seldon is also aware that inflation will be present during these 6 years and predicts the inflation rate to be 4% per year (during all 6 years). Answer the following questions.

(a) What is his expected bank balance 6 years from now?

(b) What is the purchasing power of his bank balance 6 years from now in current value of a dollar?

(c) What is the rate at which his purchasing power is growing with this investment?

Question

Ellie Padilla

Business

7 May, 15:30

3. Hari Seldon is planning for his retirement 6 years from now. He plans to deposit $30000 each year for 6 six years (i. e., 6 deposits in years 1-6) in a bank that offers a savings rate of 10% per year. Hari Seldon is also aware that inflation will be present during these 6 years and predicts the inflation rate to be 4% per year (during all 6 years). Answer the following questions.

(a) What is his expected bank balance 6 years from now?

(b) What is the purchasing power of his bank balance 6 years from now in current value of a dollar?

(c) What is the rate at which his purchasing power is growing with this investment?

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Answers (1)

Know the Answer?

Zion Golden · Answer 1

a) $231,468.30

b) $209,259.56

c) 9.59%

Explanation:

a) to calculate FV, n=6, I=10, pv=0 and pmt=30000

b) to calculate effect of inflation On FV

N=6, I = 6 (nominal interest less inflation), pv=0 and pmt=30000

c) [ (231468.30-209259.56) / 231468.30]x100