Question

What Matt Johnson delivers newspapers and is putting away $35 at the end of each quarter from his paper route collections. Matt is 10 years old and will use the money when he goes to college in 8 years. What will be the value of Matt's account in 8 years with his quarterly payments if he is earning 6.5% (APR), 9.5% (APR) or 13% (APR)?

What will be the value of Matt's account in 8 years with his quarterly payments if he is earning 6.5% (APR)? $

9.5% (APR)? $

13% (APR)? $

Answer 1

a.Information provided:

Quarterly saving= $35

Time= 8 years*4= 32 quarters

Interest rate= 6.50%/4= 1.6250% per quarter

The value in the account in 8 years is calculated by computing the future value.

Enter the below in a financial calculator to compute the future value:

PMT= 35

N= 32

I/Y= 1.6250

Press the CPT key and FV to compute the future value.

The value obtained is 1,453.87.

Therefore, the value in the account in 8 years is $1,453.87.

b. Information provided:

Quarterly saving= $35

Time= 8 years*4= 32 quarters

Interest rate= 9.50%/4= 2.3750% per quarter

The value in the account in 8 years is calculated by computing the future value.

Enter the below in a financial calculator to compute the future value:

PMT= 35

N= 32

I/Y= 2.3750

Press the CPT key and FV to compute the future value.

The value obtained is 1,649.59.

Therefore, the value in the account in 8 years is $1,649.59.

c. Information provided:

Quarterly saving= $35

Time= 8 years*4= 32 quarters

Interest rate= 13%/4= 2.3750% per quarter

The value in the account in 8 years is calculated by computing the future value.

Enter the below in a financial calculator to compute the future value:

PMT= 35

N= 32

I/Y= 2.3750

Press the CPT key and FV to compute the future value.

The value obtained is 1,919.94

Therefore, the value in the account in 8 years is $1,919.94

In case of any query, kindly comment on the solution.