1) Suppose that you make a series of annual deposits into a bank account that pa

Question

1) Suppose that you make a series of annual deposits into a bank account that pays 10% interest. The initial deposit at the end of the first year is $1,200. The deposit amount decline by $200 in each of the next four years. How much would you have immediately after the fifth deposit?


2) An engineer planning for her retirement will deposit 15% of her salary each year into a stock found. The initial balance in her stock found (year 0) is $5,000. If her salary this year is $100,000 (end of year 1) and she expects her salary to increase by 5% each year, what will be the future worth of the found after 20 years if it earns 15% per year?

Explanation / Answer

Ans. $7301.92 immediately after the fifth deposit.

Explanation:

The first year the bank will pay 10% of 1200 or 120 dollars
This amount will be added to the to principal balance

year 1320

year two another $1200 is added to the principal

1320 + 1200 = 2520 at the beginning of year two

The bank will add$ 252 in interest at the end of the year.

Year two = $ 2720

Year three another $ 1200 is added to the principal

2720 + 1200 = 3952 at the beginning of year three

The bank will add $ 395.20 in interest at the end of the year.

Year three = $ 4347.20

Year four another $ 1200 is added to the principle

4347.20 + 1200 =5547.20 at the beginning of year four

The bank will add 554.72 in interest at the end of the year.

year four = 5547.20 + 554.72 = $6101.92

year five another $1200 in interest is added to the principal

7301.92 at the beginning of year five before any interest is earned.

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