Question 1173118: A person wishes to deposit $5,000 per year in a savings account which earns interest of 8 percent per year compounded annually. Assume the first deposit is made at the end of this current year and additional deposita at the end of each following year. (a) To what sum will the investment grow at the time of the 10th deposit?
(b) How much interest will be earned?
Answer by ikleyn(52864)   (Show Source):
You can put this solution on YOUR website! .
It is a classic Ordinary Annuity saving plan. The general formula is
FV =  , (1)
where FV is the future value of the account; P is your annual payment (deposit); r is the annual percentage rate presented as a decimal;
n is the number of deposits (= the number of years, in this case).
Under the given conditions, P = 5000; r = 0.08; n = 10. So, according to the formula (1), you get at the end of the 10-th year
FV =  = $72432.81.
Note that you deposit only 10*$5000 = $50,000. The rest is the interestwhat the account earns/accumulates in 10 years
72432.81 - 50000 = 22432.81 dollars.
Solved.
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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.
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