Question

Katie had a high monthly food bill before she decided to cook at home every day in order to reduce her expenses. She starts to save $1,060 every year and plans to renovate her kitchen. She deposits the money in her savings account at the end of each year and earns 14% annual interest. Katie’s savings are an example of an annuity. If Katie decides to renovate her kitchen, how much would she have in her savings account at the end of seven years? $11,374.32 $9,668.17 $12,966.73 $4,545.60

Answer 1

Savings at the end of seven years would be $11,374.32

Step-by-step explanation:

Given:

Money deposited in savings account at the end of the year (pmt) = $1060

Annual interest earned (rate) = 14%

Time period (nper) = 7 years

It is an annuity as money is deposited every year. In order to compute the amount available at the end of 7th year, future value annuity needs to be computed.

Spreadsheet function FV can be used to compute the same.

=FV(rate,nper,PMT,PV)

Savings at the end of 7th year is $11,374.32.

Note: PV is 0.