Janet plans on saving $3,000 a year and expects to earn 8.5 percent.How much will Janet have at the end of twenty-five years if she earns what she expects?

Question

Quizplus · Accepted Answer

We can use the formula for future value of an annuity to calculate the amount Janet will have at the end of twenty-five years:
FV = Pmt x [(1 + r)^n - 1] / r
where:
Pmt = the annual payment or savings, which is $3,000
r = the interest rate per period, which is 8.5% or 0.085
n = the total number of periods, which is 25

Substitute the values into the formula and solve:
FV = 3000 x [(1 + 0.085)^25 - 1] / 0.085
FV = 3000 x (10.6551 - 1) / 0.085
FV = 3000 x 125.6098
FV = $236,003.38

Therefore, the best choice is C, as it matches with the calculated result.

Janet Plans on Saving $3,000 a Year and Expects to Earn