Leslie McCormack is in the spring quarter of her freshman year of college. She a
ID: 2396828 • Letter: L
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 10%, 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 she accumulate in three years by depositing $620 at the end of each of the next 12 quarters, beginning three months from now?
Explanation / Answer
Accumulate amount at the each of the next 12 quarters = $8,553
Accumulate amount at the each of the next 12 quarters will be the future value of an ordinary annuity
Interest Rate = 10% / 4 Quarter = 2.5%
Period = 12
Future Value of Annuity = P x [{(1+ r)n - 1} / r ]
= $620 x [ { ( 1.025)12 – 1 } / 0.025 ]
= $620 x [0.344888 / 0.025 ]
= $620 x 13.79555
= $8,553.24
= $8,553 (Rounded)
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