Question

An individual deposits an annual bonus into a savings account that pays 5% interest compounded annually. The size of the bonus increases by $4.600 each year, and the initial bonus amount was $20,000. Determine how much will be in the account immediately after the sixth deposit. A. $197,000 OB. $209.808 C. $300,523 D. $296,087

Answer 1

Rate of interest = 5%

Increase every year = $4,600

Initial bonus amount = $20,000

Determine the amount at the 6^th year

First convert the gradient series cash flows into uniform series cash flow

A = A1 + G (A/G, 5%, 6)

A = $20,000 + $4,600 (2.3579) = $30846

Calculating the FV at 6^th year

FV = $30846 (F/A, 5%, 6)

FV = $30846 (6.8019)

FV = $ 209811

Nearest answer will be $$209,808

Answer B. $209,808