Question

A father is trying to save for his daughter’s wedding in two years. (Long engagement!). He thinks he can make the following contributions to an account: $10,335.00 today and $16,365.00 in one year. The father thinks he can earn 8.00% in the market each of the next two years. If the wedding is expected to cost $59,180.00 two years from today, how much will he need to contribute at the time of the wedding to cover its cost?

Answer 1

Let the amount need to contribute at the time of the wedding to cover its cost = X

Equation :

Expected wedding cost two year from today = X + Contribution in today*(1+r)^2 + contribution in one year * (1+r)

$ 59,180 = X + $10,335 * (1+0.08)^2 + $16,365*(1+0.08)^1

$59,180 = X + $12,055 + 17,674

X = $ 59,180 - $12,055 + 17,674

X = $29,451