Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?

Question

Quizplus · Accepted Answer

We can use the formula for the future value of an annuity to calculate the balance of their savings account at the end of thirty years. For Toni, we have:

FV = 3000 x (((1 + 0.09)^30 - 1) / 0.09)
FV = 3000 x 130.4082
FV = $391,224.60

For Tim, we have:

FV = 3000 x ((1 + 0.09)^30 - 1) / (0.09 x (1 + 0.09)^30)
FV = 3000 x 117.5105
FV = $352,531.49

The difference in their savings account balances is:

391,224.60 - 352,531.49 = $38,693.11

Therefore, the closest answer is B) $36,803.03.

Toni Adds $3,000 to Her Savings on the First Day