Answer:
The amount of money in my savings account will be closest to $29,213
Explanation:
A fix Payment for a specified period of time is called annuity. The Compounding of these payment on a specified rate is known as Future value of annuity. In this question $1,000 per year payment for 18 years at 6% interest rate is also an annuity.
We can calculate the amount of saving by calculating the future value of the given annuity.
Formula for Future value of annuity is as follow
Future value of annuity = FV = P x ( [ 1 + r ]^n - 1 ) / r
Where
P = Annual payment = $1,000
r = rate of return = 6%
n = number of years = 18 years
Placing Value in the formula
As on the 18th payment no compounding interest income is accrued yet because grandparent made it now.
Future value of annuity = FV = $1,000 + 1,000 x ( [ 1 + 6% ]^18-1 - 1 ) / 6%
Future value of annuity = FV = $1,000 + 1,000 x ( [ 1 + 0.06 ]^17 - 1 ) / 0.06
Future value of annuity = FV = $29,213
