Question

You want to quit your job and go back to school for a MBA 4 years from now, and you plan to save $8,800 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today? a. $32,408.12 b. $35,243.83 c. $34,838.73 d. $40,510.15 e. $48,207.0

Answer 1

Answer:

• d. $40,510.15

Explanation:

The following tables will make it easier understanding the calculations.

Every year, you add the deposit of $8,800 to the starting amount, calculate the 5.7% interest over the balance, add the interests to the balance and obtain the final balance of the year, which is the starting balance of the next year.

First year:

Start ($):                      0

Deposit ($):                8,800

Balance ($):               8,800

Interest($):                 5.7% × 8,800 = 501.60

Final balance ($):      8,800 + 501.60 = 9,301.60

Second year:

Start ($):                    9,301.60

Deposit ($):              8,800

Balance ($):             9,301.60 + 8,800 = 18,101.60

Interest($):               5.7% × 18,101.60 = 1,031.79

Final balance ($):    18,101.60 + 1,031.79 = 19,133.39

Third year:

Start ($):                    19,133.39

Deposit ($):              8,800

Balance ($):             19,133.39 + 8,800 = 27,933.39

Interest($):               5.7% × 27,333.39 = 1,595.20

Final balance ($):    27,933.39 + 1,595.20 = 29,525.59

Fourth year:

Start ($):                   29,525.59

Deposit ($):              8,800

Balance ($):             29,525.59 + 8,800 = 38,325.59

Interest($):               5.7% × 38,325.59 = 2,184.56

Final balance ($):    38,325.59 + 2,184.56 = 40,510.15