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 | |||||||

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