Question

Your grandmother has been putting $2,000 into a savings account on every birthday since your first (that is, when you turned 1). The account pays an interest rate of 5%. How much money will be in the account on your 18th birthday immediately after your grandmother makes the deposit on that birthday?

The amount in the account upon your 18th birthday is $___________. (Round to the nearest dollar.)

Answer 1

Future Value of an Ordinary Annuity

Annual Payment (P) = $2,000

Annual Interest rate (r) = 5.00% per year

Number of period (n) = 18 Years

Therefore, Future Value of an Ordinary Annuity = P x [{(1+ r)n - 1} / r ]

= $2,000 x [{(1 + 0.05)18 - 1} / 0.05]

= $2,000 x [(2.406619234 – 1) / 0.05]

= $2,000 x [1.406619234 / 0.05]

= $2,000 x 28.13238467

= $56,264.77

= $56,265 (Rounded to the nearest dollar)

“Hence, the amount in the account upon your 18th birthday will be $56,265”