Current savings account balance in order to achieve goal

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Reference no: EM132009189

You are graduating in 2 years and you start thinking about your future. You know that you will want to buy a house 5 years after you graduate and that you will want a deposit of $70 000. As of right now, you have $8000 in your savings account. You are also fairly certain that once you graduate, you can work in the family business and earn $42 000 a year, with a 5 per cent raise every year. You plan to live with your parents for the first 2 years after graduation, which will enable you to minimise your expenses and put away $15 000 each year. The next 3 years, you will have to live out on your own, as your younger sister will be graduating from an interstate university and has already announced her plan to move back into the family house. Thus, you will only be able to save 13 per cent of your annual salary. Assume that you will be able to invest savings from your salary at 7.2 per cent. At what interest rate will you need to invest the current savings account balance in order to achieve your goal? Hint: Draw a time line that shows all the cash flows for years 0 through 7. Remember, you want to buy a house 7 years from now and your first salary will be in year 3.

Reference no: EM132009189

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