Question

You plan to make annual deposits of $130 for the next 6 years, followed by annual deposits of $1,112 for the following 6 years. The deposits earn interest of 4.2%. What will the account balance be by the end of year 27? Round to the nearest cent.

Answer 1

First, let's find the future value of the annual deposits of $130 for the next year

This gives the future value as of year 6

We will move this forward to year 27

FV27 = FV6 * (1 + r)^n

n = 27 - 6 = 21

FV27 = 866.6333157857 * (1 + 0.042)^21

FV27 = $2,056.1627104548

Now, we will find the futur value of the annual deposits of $1,112

We will move this forward to year 27

FV27 = FV12 * (1 + r)^n

n = 27 - 12 = 15

FV27 = 7,413.0480550286 * (1 + 0.042)^15

FV27 = $13,740.8183974798

The account balance by the end of year 27 = 2,056.1627104548 + 13,740.8183974798

The account balance by the end of year 27 = 15,796.9811079346

The account balance by the end of year 27 = $15,796.98