Question

In: Accounting

On each December 31, you plan to transfer $3,600 from your checking account into an investment...

On each December 31, you plan to transfer $3,600 from your checking account into an investment account. The investment account will earn 4 percent annual interest, which will be added to the account balance at each year-end. The first deposit will be made December 31, 2018 (at the end of the period). (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.)

Required:

  1. What will be the balance in the account at the end of the 10th year (i.e., 10 deposits)?
  2. What is the total amount of interest earned on the 10 deposits?
  3. How much interest revenue did the fund earn in 2019? 2020?

    What will be the balance in the account at the end of the 10th year (i.e., 10 deposits)? (Round "Future Value" to nearest whole dollar amount.)

    Table or Calculator Function:
    Annuity payments:
    n =
    i = %
    Future Value:
  4. What is the total amount of interest earned on the 10 deposits? (Round your final answer to the nearest whole dollar amount.)

    Total Amount of Interest
  5. ow much interest revenue did the fund earn in 2019? 2020? (Round your final answers to the nearest whole dollar amount.)

    Interest Revenue
    2019
    2020

Solutions

Expert Solution

Solution 1:

Table or calculator function FVA of $1
Annuity payments $3,600.00
n= 10
i= 4%
Future value $43,222

Solution 2:

Total amount of interest earned on the 10 deposits = $43,222 - ($3,600*10) = $7,222

Solution 3:

Year Beginning balance Investment Interest earned Ending Balance
2018 $0 $3,600 $0 $3,600
2019 $3,600 $3,600 $144 $7,344
2020 $7,344 $3,600 $294 $11,238
2021 $11,238 $3,600 $450 $15,287
2022 $15,287 $3,600 $611 $19,499
2023 $19,499 $3,600 $780 $23,879
2024 $23,879 $3,600 $955 $28,434
2025 $28,434 $3,600 $1,137 $33,171
2026 $33,171 $3,600 $1,327 $38,098
2027 $38,098 $3,600 $1,524 $43,222

Interest revenue - 2019 = $144

Interest revenue - 2020 = $294


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