Ken Braden estimates that taking some classes would result in earning $3,500 more a year for the next 30 years. Based on an annual interest rate of 5 percent, calculate the future value of these classes.
Answer
To calculate the future value of the classes, we can use the formula for the future value of a lump sum:
Future Value = Present Value * (1 + interest rate)^number of periods
In this case, the Present Value is the additional earnings of $3,500 per year, the interest rate is 5 percent (or 0.05), and the number of periods is 30 years.
Substituting the values into the formula, we have:
Future Value = $3,500 * (1 + 0.05)^30
Now, let's calculate the future value:
Future Value = $3,500 * (1.05)^30
≈ $3,500 * 2.653297...
≈ $9,284.04.
Therefore, taking into account an annual interest rate of 5 percent, the future value of these classes is approximately $9,284.04.