Question

Brenda plans to reduce her spending by $110 a month. Calculate the future value of this increase in savings over the next 10 years. (Assume an annual deposit to her savings account, and an annual interest rate of 8 percent.) Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Answer 1

Future Value = $ 19122.312

Explanation:

We know that,

Amount by which Brenda plans to reduce her spending = $110

Time Period of increase = 10 years

Annual Interest Rate, r = 8 %

Now,

Annual Savings is given by,

Annual Savings = Monthly reduction in spending x Number of Months per year

Annual Savings = 110 x 12 = $1320

Now,

Future Value is given by,

Future Value = Annual Savings x Future Value annuity Table factor

and,

Annuity Table Factor for n = 10 years at, r = 8 % is = 14.4866

So,

Future Value = 1320 x 14.4866

Therefore, the Future Value is = $ 19122.312