Your grandparents deposit $2,000 each year on your birthday,starting the day you are born,in an account that pays 7% interest compounded annually.How much will you have in the account on your 21st birthday,just after your grandparents make their deposit?

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to calculate the amount in the account when the child turns 21.

FV = PV(1+r)^n

Where: 
PV = Present Value = $0 (since no deposits have been made yet)
r = Annual interest rate = 7%/year = 0.07/year
n = Number of compounding periods = 21 (since the child turns 21 and deposits are made annually on their birthday)

So, we have:

FV = 2000[(1+0.07)^21 - 1]/0.07 
FV = $98,016

Therefore, the best choice is B.

Your Grandparents Deposit $2,000 Each Year on Your Birthday,starting the Day