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(a) Mr Lee wants his son to attend private university when he turns 18 years old
(a) Mr Lee wants his son to attend private university when he turns 18 years old. To be able to study in private university, his son will need RM100'000. If Mr Lee is able to get an interest rates of 6% per annum for 18 years, how much money he needs to invest from now to pay the university 18 years later?
(b) If your salary increased by 6% per annum, how many years does it take to double your salary?
Expert Solution
a) Computation of amount to be invest now to raise money of RM100,000 after 18 years:
Using the
Future value = Present value * (1+r)n
Present value = Future value / (1+r)n
Present value = RM100,000 / (1+0.06)18years
= RM100,000 / 1.0618
= RM100,000 / 2.8543
= RM35,034.40
Therefore, Mr. Lee has to invest RM35,034.40 at interest rate of 6%p.a for 18 years then he will get RM100,000 for his son Private University fee.
b) How many year will take to double the salary, when salary increase by 6% p.a:
Using same formula;
Future value = Present value*(1+r)n
Let, take salary as RM5000 per year then future value will be RM10,000
RM10,000 = RM5,000*(1+0.06)n
(1+0.06)n = RM10,000 / RM5000
(1.06)n = 2
if, calculated the above by trail and error we get approximetly 12 years.
Therefore, if salary increases by 6%p.a the for double the salary will take 12 years.
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