You are saving for a Porsche Carrera Cabriolet, which currently sells for nearly half a million dollars. Your plan is to deposit $15,000 at the end of each year for the next 10 years. You expect to earn 8 percent each year. a. Determine how much you will have saved after 10 years. b. Determine the amount saved if you were able to deposit $17, 500 each year. c. Determine the amount saved if you deposit $15,000 each year, but with 10 percent interest.

a.) $217,298.44

b.) $253,514.84.

c.) $239,061.37.

Explanation:

a. Determine how much you will have saved after 10 years

This is an ordinary annuity question and you are required to find the Future value (FV) at year 10. Using a financial calculator, key in the following inputs;

Total duration of investment; N = 10

Recurring payment; PMT = - 15,000

Interest rate; I/Y = 8%

PV = 0

then compute Future value; CPT FV = 217,298.437

Therefore, in 10 years, you will have saved $217,298.44 which does not meet your goal of half a million dollars.

b. Determine the amount saved if you were able to deposit $17, 500 each year.

With the recurring payment increasing to 17,500 per year and the interest rate remaining at 8%, find the new Future value by keying in the following inputs;

Recurring payment; PMT = - 17,500

Interest rate; I/Y = 8%

Total duration of investment; N = 10

PV = 0

then compute Future value; CPT FV = 253,514.843

Therefore, in 10 years, you will have saved $253,514.84.

c. Determine the amount saved if you deposit $15,000 each year, but with 10 percent interest.

It is still an ordinary annuity question, however, the recurring payment (PMT) will be 15,000 as before but with an annual interest rate (I/Y) of 10%. Using a financial calculator, key in the following inputs;

Total duration of investment; N = 10

Recurring payment; PMT = - 15,000

Interest rate; I/Y = 10%

PV = 0

then compute Future value; CPT FV = 239,061.369

Therefore, in 10 years, you will have saved $239,061.37.