Question

Richard was just notified that his grandfather left him an inheritance. The inheritance is structured to pay him an initial amount of $6976 which will decrease by $319 each subsequent year. Richard will receive a payment from the trust fund for 8 years. If Richard saves the money in an account paying 5% compounded annually, how much will Richard have in the account at the end of the 8 years? Note: Richard will receive the first payment at the end of year 1.

Answer 1

future value = present value * (1 + interest rate)^{number of years}

Amount Richard have in the account at the end of the 8 years = sum of future values of payments. The first payment is compounded for 7 years, the second payment for 6 years, and so on.

Amount Richard have in the account at the end of the 8 years = $56,731.27