Question

In: Finance

How much would you need to deposit in an account now in order to have $6000...

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? $

Solutions

Expert Solution

#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


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