Question

Your parents established a savings account for your college education by making annual deposits of $10,000 at the beginning of each of 5 years to a savings account paying 10%. At the end of the 5th year, the account balance was transferred to a bank paying 10%, and annual deposits of $10,000 were made at the end of each year from the sixth through the eleventh years. What was the account balance at the end of the eleventh year? Future value of 1 for 5 periods at 10% 1.61051 Future value of 1 for 5 periods of an ordinary annuity at 10% 6.10510

Answer 1

Balance in Savings at the end of 5th year
Annual deposits in the beginning of year		10,000
Multiply: Annuity FVF for annuity due		6.71561
	(6.10510+1.61051-1)
Balance after 5 years			67,156
Balance after 11 years:
Balance after 5 years			67156
Multiply: FVF for 6 years at 10% (1.61051*1.10)	1.771561
						1,18,971
Ordinary annuity made for 5 years		10,000
Multiply: Annuity FVF for 5 years		6.1051
Future value of annuity				61051
Total balance at the end of 11 th year			1,80,022
Answer is $180,022