Question

Cody invests $3,300 per year from his summer wages at a 4% annual interest rate. He plans to take a European vacation at the end of 4 years when he graduates from college. How much will he have available to spend on his vacation?

Multiple Choice

A. $14,277.12

B. $13,728.00

C. $12,672.00

D. $13,200.00

$14,013.45

Answer 1

Correct Answer:

Option: $ 14013.45

Working:

Since Cody invests every year, at year end, we can call it an ordinary annuity.

Formula for calculating the Present value of an ordinary annuity is mentioned below:

PV of Ordinary Annuity

A/R*{1-(1+R)^-N }

Putting the values into the formula:

FV of Ordinary Annuity
A	$            3,300
R	4.0%	per year
N	4	years

A/R	$          82,500
(1+R)^N	1.16985856
(1+R)^N -1	0.16985856
A/R*{(1+R)^N -1}	$    14,013.45

End of Answer.

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