Question

1. Suppose Miss Roxanne Davenport is 25 years old right now and puts away $1,800 per quarter in an account that returns 6% interest.

A. How much will be in the account when she turns 65?

B. What is her total contribution to the account?

C. How much interest did she earn?

Show all work and explain with sentences please! Thank you!

Answer 1

At age of 25,

Quarterly Deposit = $1,800

Interest Rate = 6%

a.

At the age of 65,

Total Number of deposits = 4 * 40 = 160

Future Value at the age of 65

Using TVM calculation,

FV = [PV = 0, T = 160, I = 6%, PMT = 1800]

FV = $1,179,415.39

Value of Account at the age of 65 = $1,179,415.39

b.

Total Contribution = 160 * 1800

Total Contribution = $288,000

c.

Interest Earned = Accumulated amount = Total Contribution

Interest Earned = 1179415.39 - 288000

Interest Earned = $891,415.39

So, total interest earned upto age of 65 is $891,415.39