Homework Answers
Value after first year=(Savings in first year(1+Growth rate))/(Interest Rate-Growth Rate)
=(3000(1-0.02))/(0.05-(0.02))
=(2940/0.07)
=$42000
Hence present value of savings=Future value*Present value of discounting factor(rate%,time period)
=3000/1.05+$42000/1.05
which is equal to
=$42857(Approx).
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