Jim and Aneta O'Connor invested $12,000 in a savings account paying 5% annual interest when their son, Austin, was born. They also deposited $500 on each of his birthdays until he was 20 (including his 20th birthday). Jim and Aneta have obtained the following values related to the time value of money to help them with their planning process for their compounded interest decisions. $\begin{array}{lr}
\text { Present value of } 1 \text { for } 20 \text { periods at } 5 \% & 0.37689 \
\text { Future value of } 1 \text { for } 20 \text { periods at } 5 \% & 2.65330 \
\text { Present value of an annuity of } 1 \text { for } 20 \text { periods at } 5 \% & 12.46221 \
\text { Future value of an annuity of } 1 \text { for } 20 \text { periods at } 5 \% & 33.06595
\end{array}$ To the closest dollar, how much was in the savings account on his 20th birthday (after the last deposit)?

Question

Quizplus · Accepted Answer

The future value of the initial $12,000 investment is calculated using the future value of $1 for 20 periods at 5%, which is $12,000 * 2.65330 = $31,839.60. The future value of the annuity of $500 deposited annually for 20 years is $500 * 33.06595 = $16,532.975. Adding these two amounts gives $31,839.60 + $16,532.975 = $48,372.575, which rounds to $48,373.

Jim and Aneta O'Connor Invested $12,000 in a Savings Account