Time Value Of Money
You are graduating in two years and you start thinking about your future. You know that you will want to buy a house five years after you graduate and that you will want to put down $60,000. As of right now, you have $8,000 in your savings account. You are also fairly certain that once you graduate, you can go work in the family business and earn $32,000 a year, with a 5 percent raise every year. You plan to live with your parents for the first two years after graduation, which will enable you to minimize your expenses and put away $10,000 each year. The next three years, you will have to live out on your own, as your younger sister will be graduating from college and has already announced her plan to move back in the family house. Thus, you will only be able to save 13 percent of your annual salary. Assume that you will be able to invest savings from your salary at 7.2 percent.
What is the 'interest rate' you need to invest the current savings account balance at in order to achieve your goal?