Question

Leslie McCormack is in the spring quarter of her freshman year of college. She and her friends already are planning a trip to Europe after graduation in a little over three years. Leslie would like to contribute to a savings account over the next three years in order to accumulate enough money to take the trip. Assume an interest rate of 24%, compounded quarterly. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

How much will Leslie accumulate in three years by depositing $600 at the beginning of each of the next 12 quarters? (Round your interest rate to 1 decimal place.)

Table or calculator function:
Payment:
n =
i =
Future Value:

Answer 1

Here, since the deposits are equal every quarter, so it is an annuity. Rtae of interest is 24% compounded quarterly. So quarterly rate = 24%/ 4 = 6% and time period (n) is 12 quarters.

Since the deposits start at the beginning of each quarter, so it is an annuity due. So, we have to find the future value of annuity due of $600 at 6% after 12 quarters. We will use the future value of annuity due (FVAD) table to find the required future value.

Future value of annuity due = $600 * FVAD (6%, 12 )

where, FVAD (6%, 12) is the value of $1 of annuity due at 6% after 12 Quarters. Its value from the table is 17.8821

Now, putting this value in the above equation, we get,

Future value of annuity due = $600 * 17.8821 = $10729.3

So, the accumulated value is $10729.3