Question
To motivate individuals to start saving at an early age, financial planners will sometimes present the...
To motivate individuals to start saving at an early age, financial planners will sometimes present the results of the following type of calculation. How much must a 25-year-old individual invest five years from now to have the same maturity value at age 55 as an immediate investment of $1,000? Assume that both investments earn 8% compounded annually. (Round your answer to the nearest cent.) Amount invested $
Answers
Amount invested $ 1,469.33
Step-1:Calculation of future value of investment now Future value = P * (1+i)^n Where, = $ 1,000 * (1+0.08)^30 P = $ 1,000 = $ 1,000 * 10.06266 i = 8% = $ 10,062.66 n = 30 Step-2:Calculation of investment value 5 years from now for same future value as above Investment value 5 years from now = F * (1+i)^-n Where, = $ 10,062.66 * (1+0.08)^-25 F = $ 10,063 = $ 10,062.66 * 0.146018 i = 8% = $ 1,469.33 n = 25
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