After graduation, you plan to work for 15 years and then visit Australia. You expect to save $2,000 a year for the first 5 years and $3,000 annually for the next 10 years. These savings cash flows will start in one year. In addition, your family has just given you a $6,000 graduation gift. If your gift and all future contributions are put into an account that pays 12% compounded annually, what will your financial “stake” be when you leave for Australia 15 years from now? Solution Year Savings Gift Interest compounded annually Value 15years from now 1 2000 6000 =8000*(1+0.12)15 = 43788.53 2 2000 = 2000* (1+0.12)14 = 9774.225 3 2000 = 2000* (1+0.12)13 = 8726.986 4 2000 = 2000* (1+0.12)12 = 7791.952 5 2000 = 2000* (1+0.12)11 = 6957.1 6 3000 = 3000* (1+0.12)10 = 9317.545 7 3000 = 3000* (1+0.12)9 = 8319.236 8 3000 = 3000* (1+0.12)8 = 7427.89 9 3000 = 3000* (1+0.12)7 = 6632.044 10 3000 = 3000* (1+0.12)6 = 5921.468 11 3000 = 3000* (1+0.12)5 = 5287.025 12 3000 = 3000* (1+0.12)4 = 4720.558 13 3000 = 3000* (1+0.12)3 = 4214.784 14 3000 = 3000* (1+0.12)2 = 3763.2 15 3000 = 3000* (1+0.12)1 = 3360 Value 15years from now 136002 Year Savings Gift Interest compounded annually Value 15years from now 1 2000 6000 =8000*(1+0.12)15 = 43788.53 2 2000 = 2000* (1+0.12)14 = 9774.225 3 2000 = 2000* (1+0.12)13 = 8726.986 4 2000 = 2000* (1+0.12)12 = 7791.952 5 2000 = 2000* (1+0.12)11 = 6957.1 6 3000 = 3000* (1+0.12)10 = 9317.545 7 3000 = 3000* (1+0.12)9 = 8319.236 8 3000 = 3000* (1+0.12)8 = 7427.89 9 3000 = 3000* (1+0.12)7 = 6632.044 10 3000 = 3000* (1+0.12)6 = 5921.468 11 3000 = 3000* (1+0.12)5 = 5287.025 12 3000 = 3000* (1+0.12)4 = 4720.558 13 3000 = 3000* (1+0.12)3 = 4214.784 14 3000 = 3000* (1+0.12)2 = 3763.2 15 3000 = 3000* (1+0.12)1 = 3360 Value 15years from now 136002.