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10 June, 10:37

Rachel and Hogan have three children. To save on haircuts, Rachel cuts the three kids and Hogan's hair. Doing this saves them about $50 per month. If Rachel and Hogan invest that $50 savings at the end of each month in a tax-advantaged, diversified, primarily stock-based mutual fund that averages 10% annually,

what will they have in that mutual fund in 15 years?

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  1. 10 June, 11:43
    0
    They will have $37,595.23 in mutual fund in 15 years

    Explanation:

    Step 1: Determine the present value of savings

    This can be expressed as;

    Present value=monthly savings*number of months in 15 years

    where;

    monthly savings=$50

    number of months in 15 years=12*15=180 months

    replacing;

    Present value=50*180=$9,000

    Step 2: Determine the future value of savings including interest

    This can be expressed as;

    FV=PV (1+R) ^N

    where;

    FV=future value

    PV=present value

    R=annual interest rate

    N=number of years

    In our case;

    FV=unknown

    PV=$9,000

    R=10%=10/100=0.1

    N=15 years

    replacing;

    FV=9,000 (1+0.1) ^15

    FV=9,000 (1.1) ^15

    FV=$37,595.23

    They will have $37,595.23 in mutual fund in 15 years
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