You want to go to Europe 5 years from now, and you can save $3,100 per year, BEGINNING IMMEDIATELY. You plan to deposit the funds in a mutual fund that you expect to return 8.5% per year. Under these conditions, how much will you have just after you make the fifth deposit, 5 years from now?
A) $17,986.82
B) $18,933.49
C) $19,929.99
D) $20,926.49

Question

Quizplus · Accepted Answer

To calculate the future value of the savings, we can use the formula for the future value of an annuity:

FV = Pmt x [ (1 + r)^n - 1 ] / r

where:
Pmt = annual savings amount
r = annual interest rate
n = number of years

Using this formula, we can calculate the future value of the savings just after the fifth deposit:

FV = $3,100 x [ (1 + 0.085)^5 - 1 ] / 0.085
   = $3,100 x 6.3529
   = $19,706.49

Therefore, the closest answer choice is C ($19,929.99).

You Want to Go to Europe 5 Years from Now