Sean will need $5,500 to go on holidays in 5 years' time. He decides to deposit...

Sean will need $5,500 to go on holidays in 5 years' time. He decides to deposit $1,000 into a savings account at the end of every year for the next 5 years. This savings account pays 7.5% p.a. interest compounded annually. Will Sean have enough money to go on holidays?

Expert Solution

Future value of anuity = P * [(1+R)^N -1]/R

Where, P = Payment

R = Rate of interest per period

N = Number of periods

So, Future value of annuity

= 1000 * [(1+7.5%)^5-1]/7.5%

= 1000 * [(1.075)^5 -1]/0.075

= 1000 * (1.43562932617 -1)/0.075

= 1000 * 5.8083910156

Future value of annuity = 5808.839
The Future value of deposits is higher than Vacation cost, so, yes, he will able to go to vacations.

jeff jeffy answered 2 years ago

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