Shirley adds $2,000 to her savings on the last day of each year. Shawn adds $2,000 to his savings on the ﬁrst day of each year. They both earn an 8% rate of return. What is the difference in their
Savings account balances at the end of 35 years?

Question

Quizplus · Accepted Answer

We can use the formula for future value of an annuity to calculate their savings at the end of 35 years:
For Shirley: FV = 2000((1.08)^35 - 1)/0.08 = $213,759.85
For Shawn: FV = 2000(1.08)^34 + 2000(1.08)^33 + ... + 2000(1.08)^1 + 2000(1.08)^0 = $186,189.16
The difference in their savings is: $213,759.85 - $186,189.16 = $27,570.69
Therefore, the answer is (C), $27,570.69.

Shirley Adds $2,000 to Her Savings on the Last Day