Question

Suppose you make 15 equal annual deposits of $1,000 each into a bank account paying 14% interest per year. The first deposit will be made 1 year from today. How much money can be withdrawn from this bank account immediately after the 15th deposit?

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Answer 1

Introduction:-

In microeconomics it is very important to know where to invest and the return that each investment is giving. This helps in determining the optimum method of investment and, the amount that an individual can expect at the end. Subject to certain risk factors, if the interest payable each month can be determined selection becomes an easy choice.

Calculation Notes & explanation:-

• In the question each year, the principal addition is of 1000$ thus interest earned gets added to 1000$ more every year to get a new amount on which fresh interest can be charged i.e. we need to add 1000$ to the total amount each year to calculate interest going forward
• The Total Interest Payable on is Calculated By Adding the Interest and Principal Addition Each Subsequent Year
• Interest Addition is Calculated after adding new principal of 1000$ to the Total Amount each subsequent Year
• New Principal at the end of each year is the addition of 1000$ to the interest amount and gets carried forward to the next year respectively.

Calculation:-

Interest Calculation for 15 Years
							Year	Principal Amount (Interest Payable+ Total Principal Added)	Interest Payable %	Principal Addition (Actual Addition Each Year)	Total Interest Payable On (Addition of Principal Each Year)	Interest Addition(=New Principal *Interest Payable)	New Principal Ammount at End of Year
							1	1000	14%	0	1000	140	1140
2	1140	14%	1000	2140	300	2440
3	2440	14%	1000	3440	482	3922
4	3922	14%	1000	4922	689	5611
5	5611	14%	1000	6611	925	7536
6	7536	14%	1000	8536	1195	9731
7	9731	14%	1000	10731	1502	12234
8	12234	14%	1000	13234	1853	15086
9	15086	14%	1000	16086	2252	18338
10	18338	14%	1000	19338	2707	22046
11	22046	14%	1000	23046	3226	26272
12	26272	14%	1000	27272	3818	31090
13	31090	14%	1000	32090	4493	36583
14	36583	14%	1000	37583	5262	42844
15	42844	14%	1000	43844	6138	49983

Conclusion:-

Thus, the total amount payable at the end is Rs 49983.

Please feel free to ask your doubts in the comments section