Answer to Question #245615 in Economics of Enterprise for Unknown352778

Question

Jay decides to follow this advice and puts away 1% of his animal salary of Php 500,000 per year. This equates to Php 5,000 on his 21" birthday, and his salary will increase by 2% (on average) every year thereafter until Jay turns 60 years old. What is the worth of Jay's account at age 60 when the annual interest rate on Jay's account is 4% per year?

Answer 1

Number of deposits = 40

R = 4%

g = 2%

Deposit in the first year = $5000

Value of funds at age 60 $= 5000 \times \frac{(1.04^{40} - 1.02^{40})}{(0.04 - 0.02)}$

Value of funds at age 60 =Php 648245.2