Question

1. You have always dreamed of flying to space. Finally, this dream can become reality thanks to Virgin Galactic. From www.virgingalactic.com you found out that it is only $250,000. You goal is to save up enough money over the next 5 years. You already have $35,000 invested in your brokerage account. What amount do you have to put into your brokerage account every month to have $250,000 after 5 years? Assume that your investments in the brokerage account make on average 6% per year, compounded monthly. Also assume that the fees for the brokerage account are negligibly small.

   Draw a cash flow diagram and then compare the results using the factor table and the formula. [4 points]

Answer 1

Required amount current amount Interest rate Month interst EMI Number of months 250000 35000 6% compounded monthly .50% 0 60 future value of investment = 250000 Future value of investment will be future value of 35000 + EMI futur Future value of 35000 = 35000/(1+0.005) 460 25948 EMI future value will be A *((1+r)^n - 1)/r A*(1.005460-1)/0.005 A* 69.77 69.77 *A +25948 = 250000 A will be 3211.3 per month