Question

Your grandmother has been putting $1,000 into a savings account on every birthday since your first (that is, when you turned one). The account pays an interest rate of 4%. How much money will be in the account on your 18th birthday immediately after your grandmother makes the deposit on that birthday?

Answer 1

Answer:

The amount in the account on the  18th birthday = $ 25,645.41

Explanation:

The investment can be described as an ordinary annuity. An ordinary annuity is a series of equal periodic cash flows that  occur for a certain number of years

The amount the invest will accrue principal plus interest is known as the future value of the annuity

It is determined as follows:

FV = A ×  ( (1+r)^n -1  ) / r

FV - ?,  A = 1000.  r - 4%- 0.04, n - 18

FV = 1,000× ( ( (1.04)^(18) - 1 )/ 0.04

    = 1,000 ×  25.64541288

    = $ 25,645.41

The amount in the account on the  18th birthday = $ 25,645.41