Question

In: Accounting

On Lorenzo’s first birthday, his parents deposited $5,500 into asavings account that earns a fixed...

On Lorenzo’s first birthday, his parents deposited $5,500 into a savings account that earns a fixed rate of 5.50% and compounds interest annually. How much money will Lorenzo’s account have accumulated by his 18th birthday? (Hint: Round your answer to the nearest dollar.)

$8,441

$55,000

$14,418

$13,666

What-If Scenario 1

What would have been the balance in Lorenzo’s account if his parents had waited until his 10th birthday to make their initial deposit into the same account?

$13,666

$55,000

$14,418

$8,441

What-If Scenario 2

If Lorenzo’s parents wanted to accumulate an account balance of $25,000 by his 18th birthday, then how much should they have placed on deposit on his first birthday?

$16,290

$2,500

$10,061

$9,537

Interest Factors
Periods	4.50%	5.00%	5.50%	6.00%	6.50%	7.00%	7.50%	8.00%	8.50%	9.00%
7	1.3609	1.4071	1.4547	1.5036	1.5540	1.6058	1.6590	1.7138	1.7701	1.8280
8	1.4221	1.4775	1.5347	1.5938	1.6550	1.7182	1.7835	1.8509	1.9206	1.9926
9	1.4861	1.5513	1.6191	1.6895	1.7626	1.8385	1.9172	1.9990	2.0839	2.1719
10	1.5530	1.6289	1.7000	1.7908	1.8771	1.9672	2.0610	2.1589	2.2610	2.3674
11	1.6229	1.7103	1.8021	1.8983	1.9992	2.1049	2.2156	2.3316	2.4532	2.5804
12	1.6959	1.7959	1.8832	2.0122	2.1291	2.2522	2.3818	2.5182	2.6617	2.8127
13	1.7722	1.8856	1.9868	2.1329	2.2675	2.4098	2.5604	2.7196	2.8879	3.0658
14	1.8519	1.9799	2.0961	2.2609	2.4149	2.5785	2.7524	2.9372	3.3134	3.3417
15	1.9353	2.0789	2.2114	2.3966	2.5718	2.7590	2.9589	3.1722	3.3997	3.6425
16	2.0224	2.1829	2.3553	2.5404	2.7390	2.9522	3.1808	3.4259	3.6887	3.9703
17	2.1134	2.2920	2.4848	2.6928	2.9170	3.1588	3.4194	3.7000	4.0023	4.3276
18	2.2085	2.4066	2.6215	2.8543	3.1067	3.3799	3.6758	3.9960	4.3425	4.7171
19	2.3079	2.5270	2.7656	3.0256	3.3086	3.6165	3.9515	4.3157	4.7116	5.1417
20	2.4117	2.6533	2.9178	3.2071	3.5236	3.8697	4.2479	4.6610	5.1120	5.6044
21	2.5202	2.7860	3.0782	3.3996	3.7527	4.1406	4.5664	5.0338	5.5466	6.1088
22	2.6337	2.9253	3.2475	3.6035	3.9966	4.4304	4.9089	5.4365	6.0180	6.6586
23	2.7522	3.0715	3.4262	3.8197	4.2564	4.7405	5.2771	5.8715	6.5296	7.2579

Expert Solution

1)	Amount that will have at his 18th birthday
	= amount deposited * future value factor for 5.5% 18 years

	=$5500*2.6215

	=$14418


2)	If first deposit made at his 10th birthday, deposit term would be
	=18-10
	=8
	Amount that will have at his 18th birthday
	= amount deposited * future value factor for 5.5% 8 years

	=5500*1.5347

	=8441


3)	Period would be = 18-1 =17 years

	Amount to be deposited = Desired amount /future value factor for 17th year 5.5%

	=$25000/2.4848

	=$10061

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