if $175 is deposited at the end of each year in a saving account that pays...

if $175 is deposited at the end of each year in a saving account that pays 6% interest per year , approximately how much money will be in the account at the end of 10 years

Expert Solution

This is the example of an annuity. annuities are recurring payments, such as the rent or interest on a bond. The future value of an annuity is the total value of payments at a specific point in time while the present value is how much money would be required now to produce those future payments.

There are of two types :

Ordinary annuity:payments are made at the end of each period ,the given example is of ordinary annuity
Annuity due: payments are made at the end of each period.

We are required to find the future value of $175 ordinary annuity at 6 % per year at the end of 10 years.

Formula for Future Value is FV Ordinary Annuity=C × [(1+i)ⁿ−1/ i ]

where:C=cash flow per periodi=interest raten=number of payments

FV = 175 × [(1+0.06)¹⁰−1/ 0.06]

= 175 ×[(1.06)¹⁰−1/ 0.06]

= 175 × [1.7908 −1/ 0.06]

= 175 × [0.7908 / 0.06]

= 175 × 13.18

= $ 2306.64

Money in the account at the end of 10 years will be $ 2306.64 .

Rahul Sunny answered 1 year ago

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