Question

Tom and Suri decide to take a worldwide cruise. To do so, they need to save $28,000. They plan to invest $3,800 at the end of each year for the next five years to earn 10% compounded annually.

1-a. Calculate the future value of the investment.

(FV of $1, PV of $1, FVA of $1, and PVA of $1)

(Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Answer 1

Answer-

Saving Required to take a worldwide cruise amounting $ 28,000.

Annual Investment Required at the end of each year amounting $ 3,800 at the end for next five year.

ROI - 10 % compounded annually

Formula for calculating Future Value

FV = Pmt x ((1 + i)n - 1) / i

=P [(1+i)ⁿ -1]/i

                                         Computation of Future Value of the Investment

Year	Investment ($)	F.V.A.F (10%)	Value of Investment ($) =Investment X F.V.A.F
1	$ 3,800.00	1.0000	$ 3,800.00
2	$ 3,800.00	2.1000	$ 7,980.00
3	$ 3,800.00	3.3100	$ 12,578.00
4	$ 3,800.00	4.6410	$ 17,635.80
5	$ 3,800.00	6.1051	$ 23,199.38

Schedule

Year	start principal       (A)	start balance        (B)	interest (C) = (B X 10 %)	end balance     (D)= (B+C+$ 3800)	end principal (E)= $3800 X No. of Year
1	$0.00	$0.00	$0.00	$3,800.00	$3,800.00
2	$3,800.00	$3,800.00	$380.00	$7,980.00	$7,600.00
3	$7,600.00	$7,980.00	$798.00	$12,578.00	$11,400.00
4	$11,400.00	$12,578.00	$1,257.80	$17,635.80	$15,200.00
5	$15,200.00	$17,635.80	$1,763.58	$23,199.38	$19,000.00

Therefore, the annual investment with $ 3800 becomes $ 23,199.38 after five year at 10 % annual compounded interest rate.