1. You deposit $1,000 into an account each year for 10 years with the first depo
ID: 2815224 • Letter: 1
Question
1. You deposit $1,000 into an account each year for 10 years with the first deposit made next year. Assuming an interest rate of 5%, the account will have a balance of $____ 10 years from today.
2.Today is your 25thbirthday. You will begin making equal deposits on each birthday until your 65thbirthday into an account that earns 6%. The first deposit will be made on your 26thbirthday. To attain your goal of having $1,000,000 in the account on your 65thbirthday, the deposits must be $_________.
Explanation / Answer
1. Deposit of $1000 each year @ 5% interest rate. (Deposit is made at the start of next year, i.e the end of this year)
FV of annuity = P ((1+r)^n - 1)/r
= 1000 ((1+0.05)^10 - 1)/0.05
= $ 12,577.89
2. To attain a goal of $1,000,000,
We will be making deposits every year for 40 years of equal money @ 6%.
FV of annuity = P ((1+r)^n - 1)/r
1,000,000 = P ((1+0.06)^40 -1/0.06
1,000,000 = P (154.7619)
So, P = 1,000,000/154.7619
P = $6461.54 approx.
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