You plan to save $7,000 each of the next 40 years, and invest that money in an account that pays 9% annual interest. In addition, you plan to pay for your child's college education beginning in 20 years. You expect that education to cost $30,000 per year for four years. To pay for the education, you will simply withdrawal money from your investment account. In addition, you currently have an outstanding loan with a balance of $15,000 and an annual interest rate of 9%. You plan to pay off that loan over the next few years. A timeline depicting this situation follows.
|
Date
|
0
|
1-19
|
20-23
|
24-40
|
|
Deposits
|
|
$7,000
|
$7,000
|
$7,000
|
|
Withdrawals
|
|
|
$30,000
|
|
|
Loan Balance
|
$15,000
|
|
|
|
a) How much money will you have just after you make your last deposit forty years from today?
b) How much money will you have 5 years later (year 45) if you make no additional deposits or withdrawals?