Question

Kenneth and Donna Garfield invested $7,400 in a savings account paying 7% annual interest when their daughter, Angela, was born. They also deposited $1,200 on each of her birthdays until she was 16 (including her 16th birthday).

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

How much was in the savings account on her 16th birthday (after the last deposit)? (Round answer to 2 decimal places, e.g. 25.25.)

Answer 1

FV of savings = FV of single deposit + FV of annuity

                       = $ 7,400 x FVIF (i, n) + $ 1,200 x FVIFA (i, n)

                      = $ 7,400 x FVIF (7%, 16) + $ 1,200 x FVIFA (7%, 16)

                       = $ 7,400 x 2.95216 + $ 1,200 x 27.88805

                       = $ 21,845.984 + $ 33,465.66

                       = $ 55,311.644 or $ 55,311.64

Total savings on the account will be $ 55,311.64 after the last deposit.