Question

Future value.

  Jack and Jill are saving for a rainy day and decide to put ​$60 away in their local bank every year for the next 20 years. The local​ Up-the-Hill Bank will pay them 6​% on their account.

a. If Jack and Jill put the money in the account faithfully at the end of every​ year, how much will they have in it at the end of 20 ​years?

b. ​ Unfortunately, Jack had an accident in which he sustained head injuries after only 10 years of savings. The medical bill has come to $700. Is there enough in the​ rainy-day fund to cover​ it?

Answer 1

a. Information provided:

Yearly saving= $60

Time= 20 years

Interest rate= 6%

The money in the account at the end of 20 years is calculated by computing the future value.

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

PMT= 60

N= 20

I/Y= 6

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

The value obtained is 2,207.14.

Therefore, the money in the account at the end of 20 years is $2,207.14.

b. Information provided:

Yearly saving= $60

Time= 10 years

Interest rate= 6%

The money in the account at the end of 10 years is calculated by computing the future value.

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

PMT= 60

N= 10

I/Y= 6

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

The value obtained is 790.85.

The money in the account at the end of 10 years is $790.85.

Therefore, there is enough money in the rainy day fund to cover the medical bill.

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