1. 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 additional earnings?
40 yrs * 7,000/ yr = $280,000
I don't understand how to get this part?
b. What would be the future value of these additional earnings based on an annual interest rate of 6 percent?
See Sat,1-28-12,11:55am post.
To calculate the future value of the additional earnings of $7,000 per year for 40 years with an annual interest rate of 6 percent, you can use the formula for calculating the future value of an annuity.
The formula is:
Future Value = P * ((1 + r)^n - 1) / r
Where:
P = Annual payment
r = Interest rate (in decimal form)
n = Number of years
In this case, the annual payment (P) is $7,000, the interest rate (r) is 6 percent (or 0.06 in decimal form), and the number of years (n) is 40.
Plugging these values into the formula:
Future Value = $7,000 * ((1 + 0.06)^40 - 1) / 0.06
Using a calculator or spreadsheet software, solving this equation will give you the future value of the additional earnings.