Question

Anakin puts $600 per year (starting today) into a retirement account. The account pays 5% effective annual interest. How much will Anakin have in this account immediately after the deposit 4 years from today is made

Answer 1

Answer:

$3,249.80

Explanation:

Time  Cash Flow

0            600

1             600  

2            600

3            600

4            600

Future Value of this cash flow at the end of year 4 = 600 * ((1+4%)^5 – 1)/4%

Future value = 600 * [(1+0.04)^5 - 1 ] / 0.04

Future value = 600 * (1.04^5 - 1) / 0.04

Future value = 600 * (1.216653 - 1) / 0.04

Future value = 600 * 0.216653/ 0.04

Future value = 600 * 5.416325

Future value = $3249.795

Future value = $3,249.80