Question

If a person spends $32 a week on coffee (52 weeks in a year), what would be the future value of that amount over 14 years if the funds were deposited in an account earning 5 percent? Round your answer to the nearest whole number.

Answer 1

The Future Value of an Ordinary Annuity

Weekly Payment (P) = $32 per week

Weekly Interest rate (r) = 0.09615385% per week [5.00% / 52 weeks]

Number of week (n) = 728 weeks [14 Years x 52 Weeks per year]

Future Value of an Ordinary Annuity = P x [{(1+ r) ⁿ - 1} / r]

= $32 x [{(1 + 0.0009615385)⁷²⁸ - 1} / 0.0009615385]

= $32 x [(2.01307555 – 1) / 0.0009615385]

= $32 x [1.01307555 / 0.0009615385]

= $32 x 1053.598572

= $33,715

“Hence, the future value of that amount over 14 years will be $33,715”