Question

Future Value Computation
You deposit $4,000 at the end of every year for 4 years. How much will accumulate in 4 years if you earn 6% compounded annually? Use Excel or a financial calculator for computation. Round your answer to nearest dollar.

Answer 1

• All working forms part of the answer
• Amount is deposited at the year ends, hence amount deposited in a year will earn interest next year.
• Working

End of period	Beginning Balance of investment (A)	Interest earned (B = A x 6%)	Amount Deposited (C)	Ending investment balance (A+B+C)
Year 0	$                       -	$                           -	$             4,000	$               4,000
Year 1	$                4,000	$                        240	$             4,000	$               8,240
Year 2	$                8240	$                        494	$             4,000	$               12,734
Year 3	$                12,734	$                        764	$             4,000	$               17,498   [Answer]
TOTAL	$0	$1,498	$16,000	$17,498 [0 + 1498 + 16000]

• Hence, if $4,000 is deposited for 4 years at the end of every year [4 x 4000 = $16,000 ], with interest rate 6% compounded annually, the total amount accumulated at the end will be $17,498