Question

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?

Answer 1

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

Step-by-step 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