Question

The day you were born your Grandparents started to save money for your future education. They decided to deposit $3,000 at the end of each year, for eighteen years, in a savings account that pays 7.5% per year, compounded annually.
On your 19th birthday you get admission into university for a four-year degree course. You calculate that you require approximately $35,000, for your fees, books and living expenses for each year. Assuming you keep the money in the bank accruing the same interest, and withdraw $ 35,000, at the beginning of each year.

a) Calculate the total value of this investment at the end of the term?

b) Determine the total interest earned?

Will your inheritance last you for the full tenure of your four years at the university?
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Answer 1

The total value of the investment is $107,032.16.

The total interest earned is $53,032.16

The inheritance would last the tenure of the university.

What is the total value of the investment?

The formula that can be used to determine the future value of the 18-year annuity is: annuity factor x amount deposited yearly

Annuity factor = {[(1+r)^n] - 1} / r

Where:

• r = interest rate
• n = number of years

$3000 x [(1.075^18 - 1) / 0.075] = $107,032.16

Amount deposited in the course of 18 years = (3000 x 18) = 54,000

Interest earned = 107,032.16 - 54,000 = $53,032.16

To learn more about annuities, please check: brainly.com/question/24108530

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