Question

Brief Exercise A-5 Andrew and Emma Garfield invested $6,500 in a savings account paying 4% annual interest when their daughter, Angela, was born. They also deposited $1,700 on each of her birthdays until she was 15 (including her 15th birthday). (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much was in the savings account on her 15th birthday (after the last deposit)? (Round answer to 2 decimal places, e.g. 25.25.) Amount on 15th birthday: $

Answer 1

Step 1 Calculating future value of 6500 invested for 15 years @4% interest

Futurevalue = presnt value (1+r)n

= 6500 (1+.04)15

=11706.11  

* (1+04)15 can be calculated either by using calculator or annuity table Future Value Interest Factors for One Dollar Compounded at r Percent for n Periods: value = 1.8009

Now for 1700 each year we can use annuity table 4% 15 year

Formula Future value = Amount x Present Value Interest Factors for a One-Dollar Annuity Discounted at r (4%) Percent for n (15)Periods: PVIFA

Value for table is 11.11839

so future value is 1700 x 11.11839 =18901.26

Amount on 15 birthday = 11706.11 + 18901.26 = $ 30607.37