Question

M C CUNICU NU Tulure Value or savings account If you put $4,000 in a savings account that pays Interest at the rate of 7 percent, compounded annually. a. how much will you have in three years? Round the answer to the nearest cent. Round PV-factor to three decimal places or use the Appendix A. (Hint: Use the future value formula.) b. how much interest will you earn during the three years? Round the answer to the nearest cent. c. If you put $4,000 at the end of each year into a savings account that pays Interest at the rate of 7 percent a year, how much would you have after three years? Use the Appendix B. Round the answer to the nearest cent. Round FV-factor to three decimal places.

Answer 1

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

a)

Future value = 4000 * (1+ 7%)^3

= 4900.17

b)

Interest earned = 4900.17 - 4000 = 900.17

c)

Future value of annuity= payment per period * [(1+i)^n-1]/i

i = interest rate per period

n = number of periods

=>

Future value = 4000 * [(1+7%)^3 - 1]/7%

= 12859.6