Determining the future value of education. Jenny Franklin estimates that as a result of completing her master's degree, she will earn $7,000 a year more for the next 40 years. A.) what would be the total amount of these additional earnings? B.) what would be the future value of these additional earnings based on an annual interest rate of 6 percent?
A. 40yrs * 7000/yr = $280,000.
B. Pt = Po(1+r)^n.
r = APR = 6% = 0.06.
n = the # of compounding periods.
Pt = 7000(1.06)^40 = $720,000.26.
To determine the future value of Jenny Franklin's additional earnings, we first need to calculate the total amount of these earnings and then determine their future value based on an annual interest rate of 6 percent.
A.) Total amount of additional earnings:
Jenny estimates that she will earn $7,000 a year more for the next 40 years. So to calculate the total amount of these additional earnings, we multiply the annual additional earnings by the number of years:
$7,000 x 40 = $280,000
Therefore, the total amount of these additional earnings is $280,000.
B.) Future value of additional earnings:
To calculate the future value of these additional earnings based on an annual interest rate of 6 percent, we can use the formula for calculating the future value of a single cash flow:
Future Value = Present Value x (1 + Interest Rate)^n
In this case, the present value is the total amount of additional earnings ($280,000), the interest rate is 6 percent (0.06), and n is the total number of years (40).
Future Value = $280,000 x (1 + 0.06)^40
Using a calculator or spreadsheet, we can calculate this future value:
Future Value = $280,000 x (1.06)^40
The future value of these additional earnings based on an annual interest rate of 6 percent is approximately $1,574,804.48.
Therefore, the future value of these additional earnings is approximately $1,574,804.48.