FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
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When you were born, your grandparents put $5,000 in to a
money market account to help with your college education. The bank gave them a guaranteed interest rate of 6% per year until you turned 18. How much money will be in the account on your 18th birthday if you never withdraw any money until that day?$11,417.20
$54,138.00
$1751.50
$14,271.50
Expert Solution
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Step 1
Solution
Calculate the Future value of the Investment
FV = PV ( 1 + r )n
FV = Future Value of investment
PV = Present Value Of Investment
r = Annual Interest Rate
n = End of the year
So as per this problem :
FV = PV(1 + r )n
PV = $5000
r = 6% or 0.06
n = 18 years
FV = PV (1 + r)n
= 5000 ( 1 + 0.06 ) 18
= 5000 ( 1.06 ) 18
= ( 1.06)18 = 1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06*1.06
= 2.85433
= 5000 * 2.85433
= $14271.50
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