Question

If the interest rate in a savings account is 10% and I place 7,000 dollars in next year and then add $300 per year to this amount how much money will I have after 10 years.

Answer 1

This can be solved using formula of Future value of single amount and Future value of annuity

FV = 7000 x FVIF(r%,n) + 300 x FVIFA(r%,n)

Here r = rate of interest = 10% and n = number of years

FV = 7000 x FVIF(10%,10) + 300 x FVIFA(10%,9)

FVIFA(r%,n) = [(1+r)^n - 1 /r]

FVIFA(10%,9) = [(1+10%)^9 - 1 /10%]

=[(1+0.1)^9 -1 /0.1]

=[(1.1^9 - 1 /0.1)

=2.3579 - 1 /0.1

=1.3579/0.1

=13.579

FVIF(10%,10) = (1+r)^n

=(1+10%)^10

=(1+0.1)^10

=(1.1)^10

=2.5937

Thus FV = 7000 x 2.5937 + 300 x 13.579

=18156.1972 + 4073.8431

=22230.04$