At the end of each year for 25 years you deposit $365 in an account that earns 12% interest.If instead you had begun saving earlier,and had deposited $365 in the account each year for 50 years,how much more money would you have on deposit?

Question

Quizplus · Accepted Answer

The formula for finding the future value of an annuity is:

FV = PMT x {(1 + r)^n - 1}/r

where
PMT = payment made each period (year)
r = annual interest rate
n = number of periods (years)

For the first scenario:

PMT = $365
r = 12%
n = 25

FV = $365 x {(1 + 0.12)^25 - 1}/0.12
FV = $365 x 127.058
FV = $46,336.17

For the second scenario:

PMT = $365
r = 12%
n = 50

FV = $365 x {(1 + 0.12)^50 - 1}/0.12
FV = $365 x 2,523.204
FV = $921,675.60

The difference in the two scenarios is:

$921,675.60 - $46,336.17
= $875,339.43

So the answer is D) $827,339.80, the closest option.

At the End of Each Year for 25 Years You