You decided to save all of tax refunds next four years. Given your projection of your annual income and effective tax rate, you believe that you will be able to invest $3,000, $3,300, $3,800, and $4,000 next four years, respectively, starting a year from today. Your estimated rate of return on this investment is 5%. How much can you withdraw in 4 years

Question

Maddox

Business

21 October, 02:19

You decided to save all of tax refunds next four years. Given your projection of your annual income and effective tax rate, you believe that you will be able to invest $3,000, $3,300, $3,800, and $4,000 next four years, respectively, starting a year from today. Your estimated rate of return on this investment is 5%. How much can you withdraw in 4 years

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Answers (1)

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Ricardo Cervantes · Answer 1

Final value = $15,101.13

Explanation:

Giving the following information:

You believe that you will be able to invest $3,000, $3,300, $3,800, and $4,000 next four years. The interest rate is 5%.

To calculate the final value of each deposit we need to use the following formula:

FV = PV * (1+i) ^n

Year 1 = 3,000*1.05^3 = $3,472.88

Year 2 = 3,300*1.05^2 = 3,638.25

Year 3 = 3,800*1.05 = 3,990

Year 4 = 4,000

Total = $15,101.13