In: Finance
How much would you need to deposit in an account now in
order to have $6000 in the account in 5 years? Assume the account
earns 2% interest compounded daily.
$
You decide to contribute to a mutual fund that averages 3.6%
return per year. If you contribute $225 quarterly.
Round all answers to the nearest cent as needed.
a) How much will be in the account after 15 years? $
b) How much of this money did you deposit? $
c) How much of this money is interest earned? $
#1.
Present value formula:
Where,
PV = Present value or amount deposited.
FV = Future value
i = rate of interest
a = number of compounding in a year
Therefore,
Therefore, you need to deposit $5,429.04 today.
#2.
a) We can use the future value of the annuity formula:
Where,
FVA = Future Value of Annuity
A = Annuity
i = rate of interest
n = number of years
a = number of payments in a year
Therefore,
Therefore, there will be $17,796.67 in the account after 15 years.
b) Amount deposited = Quarterly payment * Number of quarters in a year * Number of years
= $225 * 4 * 15
= $13,500
c) Interest earned = Amount in the account after 15 years - Amount deposited
= $17,796.67 - $13,500
= $4,296.67