Question

You plan to deposit $700 in a bank account now and $100 at the end of the year. If the account earns 5%interest per​ year, what will be the balance in the account right after you make the second​ deposit?

Answer 1

Solution :

We can calculate by calculating the future value of $ 700 and adding an additional deposit of $ 100.

Balance in the Account        = FV of $ 700 + $ 100

                                             = [(1 + r) ^{^ n}) * $ 700] + $ 100

                                             = [(1+ 0.05) ^{^ 1} * $ 700] + $ 100

   = [ 1.05 * $ 700] + $ 100

   = $ 735 + $ 100

   = $ 835

or   

Balance in the Account       = $ 700 + Interest on $ 700 + $ 100

                                            = $ 700 + $ 35 (i.e. 700 * 5%) + $ 100

                                            = $ 835

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