John Mason decided to save $2,250 at the end of each of the next three years to pay for a vacation. If he invests it at 8 percent annually, how much will he have at the end of three years? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

John Mason's savings plan is an example of a future value of an annuity, where he makes regular deposits (annuity payments) into an account that earns interest. The formula to calculate the future value of an annuity is $FV = P \times \left( \frac{(1 + r)^n - 1}{r} \right)$, where $P$ is the payment amount, $r$ is the interest rate per period, and $n$ is the number of periods. Plugging in the values: $P = \$2,250$, $r = 0.08$ (8% annual interest), and $n = 3$ years, we get $FV = \$2,250 \times \left( \frac{(1 + 0.08)^3 - 1}{0.08} \right) = \$2,250 \times 3.2464 = \$7,304.40$. Rounding to the nearest dollar gives \$7,304.

John Mason Decided to Save $2,250 at the End of Each