Question

One year ago, the Jenkins Family Fun Center deposited $4,200 into an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $6,000 to this account. They plan on making a final deposit of $8,200 to the account next year. How much will be available when they are ready to buy the equipment, assuming they earn a rate of return of 5 percent?

Answer 1

The vehicle is due 4 years from today,

one year before they have deposited an amount of $4200, at the time of buying the equipment this amount will be compounded for 5 years,

so the amount available to buy the equipment after 5 years will be

FV = PV (1 +R)N

=$4,200 (1.05)^5

=$5,360.3826

Next, we deposit an amount of $6,000 into this account today,

the amount available at the time of buying the equipment will be :

$6000 * (1.05)^4

=$7290.0375

Next year , we deposit a amount of 8200, which will be compounded for 3 years at the rate of 5%,

the FV is:

FV = PV * (1+r)^n

=$8,200 * (1.05)^3

=$9492.525

Therefore, the total amount available to buy the equipment is

=$22,145.9451