Question

An account pays 4 percent interest (yearly effective). 10,000 dollars is deposited into that account at the end of the first year, and the deposits increase by 2000 dollars each year (12,000 is the second year’s deposit, etc.)

What is the amount in the account at the end of 20 years and what is the present value?

Answer 1

At the end of 1st year amount deposite is $10,000

increases by 2000 for 20 years

The amount at the end of 20 years is $48,000 as shown in the exxcel column

10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
30000
32000
34000
36000
38000
40000
42000
44000
46000
48000

Thus FV = $48,000

i = 4%

n = 20 years

FV = PV

48000 = PV

PV = 48000 /

= 48000 / 2.191 = $21,907.80 = $21,908(rounded ioff to nearest whole number)

PV = $21,908

So FV = 21908(2.191) = $48000