In: Accounting
On January 1, 2016, you deposited $5,300 in a savings account. The account will earn 9 percent annual compound interest, which will be added to the fund balance at the end of each year. Required: 1. What will be the balance in the savings account at the end of 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 2. What is the total interest for the 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 3. How much interest revenue did the fund earn in 2016 and in 2017? (Round your final answers to 2 decimal places.)
Solution 1: Calculation of the Future Value of $5300 after 7 years at an annual interest rate of 9%.
Future Value = Present Value (1 + r)^t
Where, r = Annual interest rate
t = Number of years
Therefore,Future Value of $5300 = 5300 (1.09)^7
= 5300 * 1.8280
=$9688.61
The Future Value of $5300 after 7 years at an annual interest rate of 9% is $9688.61.
Solution 2: Calculation of the total Interest for 7 years.
Total Interest for 7 years = Maturity Amount - Amount Deposited
= $9688.61 - $5300
= $4388.61
Solution 3: Calculation of Interest revenue for the year 2016 and 2017
Year | Opening Balance | Interest = 0.09 * Opening Balance | Closing Balance = Opening Balance + Interest |
2016 | 5,300.00 | 477.00 | 5,777.00 |
2017 | 5,777.00 | 519.93 | 6,296.93 |
2018 | 6,296.93 | 566.72 | 6,863.65 |
2019 | 6,863.65 | 617.73 | 7,481.38 |
2020 | 7,481.38 | 673.32 | 8,154.71 |
2021 | 8,154.71 | 733.92 | 8,888.63 |
2022 | 8,888.63 | 799.98 | 9,688.61 |
Therefore, the interest income for the year 2016 is $477 and for the year 2017 is $519.93