SOLUTION: Debbie plans to buy a house for cash instead of paying a mortgage. She is willing to set aside $12 OOO at the end of each year for 15 years. She invests the money in a high-risk mu

Question 1207421: Debbie plans to buy a house for cash instead of paying a mortgage. She is willing to set aside $12 OOO at the end of each year for 15 years. She invests the money in a high-risk mutual fund, which has traditionally earned 9.2% annually. Money decreases in value by 2.5% per annum. How much will Debbie have saved after 15 years?
Answer by ikleyn(52786) (Show Source): You can put this solution on YOUR website!
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Debbie plans to buy a house for cash instead of paying a mortgage.
She is willing to set aside $12 OOO at the end of each year for 15 years.
She invests the money in a high-risk mutual fund, which has traditionally earned 9.2% annually.
Money decreases in value by 2.5% per annum. How much will Debbie have saved after 15 years?
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First, calculate the future value of the ordinary annuity

    FV = ,


where  P is the annual payment at the end of each year (P = %12000);

       r is the rate of 9.2% (which is 0.092 decimal);

       n = 15 is the number of years.


So, FV =  = 357917.24 dollars.


Then convert the todays' dollars into the future dollars at 2.5% inflation

     Debbie's cash in the future dollars =  = 247129.53 future dollars.    ANSWER

Solved.

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