, she deposits $1,100 in her bank account, Beverly Hills started a paper route o
ID: 1171885 • Letter: #
Question
, she deposits $1,100 in her bank account, Beverly Hills started a paper route on January 1. Every three months which earns 8 percent annually but is compounded quarterly. Four years later, she used the entire balance in her How much will she have after three more years? Use Appendix A and Appendix C for an approxi calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) mate answer, but Future value Hints References eBook & ResourcesExplanation / Answer
Interest rate = 8/4 = 2% per quarter
First we need to calculate FV of the annuity
Annuity is series of equal cash flows for certain period of time, if periodic cash flow is P, number of period is n, and interest per period is r then future value of cash flow will be
FV of annuity = P [(1 + r)^n - 1]/ r
Let's put the values in the formula,
= 1100[(1 + 0.02)^16 - 1]/ 0.02
= 1100[(1.02 )^16 - 1]/ 0.02
= 1100 ( 1.37278570509061 ) - 1/ 0.02
= 1100 ( 0.372785705090612 )/ 0.02
= 1100 * 18.6392852545306
= 20503.21
So after 4 years, he will have $20503.21 in his account.
That amount is further invested for 3 years.
Future value is calculated by Compounding the Present cash flow
The formula is,
FV = Present value *(1 + r)^n
= 20503.21*(1 + 0.09)^3
= 20503.21*(1.09)^3
= 20503.21*(1.295029)
= 26552.25
After 3 years account balance will be $26552.25
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