Question

Saved Help Save & Exit Submit Your sister just deposited $8,000 into an investment account. She believes that she will earn an annual return of 9.3 percent for the next 10 years. You believe that you will only be able to earn an annual return of 8.6 percent over the same period. How much more must you deposit today in order to have the same amount as your sister in 10 years?

Answer 1

Future Value of Sister = Present Value (1+r)n

where r is the rate of Return for compounding period = 9.3%

n is the no of compounding period i.e 10 years

Future Value of Sister = 8000 ( 1+0.093)10

= $ 19466.6672981

Now to get 19466.6672981 @ 8.6% we need to deposit

19466.6672981 =  Amount to be deposited * ( 1+0.086)10

19466.6672981 =  Amount to be deposited * 2.28190863889

Amount to be deposited = 19466.6672981 /  2.28190863889

Amount to be deposited = 8530.87

Extra Funds needs to be deposited = 8530.87 - 8000 = $ 530.87

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