Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year) that earns 6% interest compounded annually, how much will he have saved by the end of the 10^th year?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity, we can calculate the amount Tom will have saved:
FV = PMT[((1 + r)^n - 1) / r]
where FV is the future value, PMT is the payment amount, r is the interest rate, and n is the number of periods. Plugging in the values, we get:
FV = $500[((1 + 0.06)^10 - 1) / 0.06]
FV = $6,590.39
Therefore, Tom will have saved $6,590.39 by the end of the 10th year.

Tom Is Saving for an Engagement Ring