Beverly Hills started a paper route on January 1, 2009. Every three months, she

Question

Beverly Hills started a paper route on January 1, 2009. Every three months, she deposits $800 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31, 2012, she used the entire balance in her bank account to invest in an investment at 12 percent annually. How much will she have on December 31, 2015? Use Appendix A and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future value

Explanation / Answer

(1) Future value (from1 january 2009 to 31 december2012) = 4 years

future value of ordinary annuity = payment [ ( 1 + interest /4)years * 4 - 1 ] / (interest /4)

= $800 [ ( 1 + 0.08/4)4*4 - 1 )] / 0.08/4

= $800 [ (1.02)16 - 1 ] / 0.02

   = 800 * (1.3728 - 1 ) / 0.02

   = 800 * 0.3728 / 0.02

   =$14912

future value (from 31 December 2012 to 31December 15) = 3 year

   Future value = principal ( 1 + interest) years

=$14912 ( 1 + 0.12)3

= $14912 ( 1.12)3

       =$14912 * 1.405

   = $20951.4

   

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