Jacquie plans to deposit $3,500 into her savings account for each of the next 5 years,and then $2,000 per year for 5 years after that (all at year end).She anticipates interest rates to be 6% for the next 3 years and then 9% thereafter.How much will she have in the account after the 10 years?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the future value of the $3,500 deposits for the three years at 6%, then the remaining years at 9%.
FV = PMT × 11ea7fdb_fc15_7003_a768_832d4523779d_TB2902_11 FV = 3,500 × 11ea7fdb_fc15_7004_a768_6306ef84b636_TB2902_11 = $11,142.60
Using a financial calculator:
N = 3, I/Y = 6, PV = 0, PMT = -3,500, cpt FV = $11,142.60
11,142.60 × 11ea7fdb_fc15_7005_a768_cfe4cd8b7777_TB2902_11 = $20,369.11
Step 2 - Calculate the future value of the last two $3,500 deposits at 9%, then the interest they will earn for the remaining years at 9%.
FV = 3,500 × 11ea7fdb_fc15_7006_a768_c794e39d8b4f_TB2902_11 = $7,315
Using a financial calculator:
N = 2, I/Y = 9, PV = 0, PMT = -3,500, cpt FV = $7,315
7,315 × 11ea7fdb_fc15_7007_a768_9511525b0be1_TB2902_11 = $11,255.03
Step 3 - Calculate the future value of the $2,000 deposits at 9% for the remaining life of the annuity.
FV = 2,000 × 11ea7fdb_fc15_7008_a768_918bc952c876_TB2902_11 = $11,969.42
Using a financial calculator:
N = 5, I/Y = 9, PV = 0, PMT = -2,000, cpt FV = $11,969.42
Step 4 - Add all of the future values together.
$20,369.11 + $11,255.03 + $11,969.42 = $43,593.56

Jacquie Plans to Deposit $3,500 into Her Savings Account for Each