Question

Your company just sold a product with the following payment plan: $50,000 today, $25,000 next year, and $10,000 the following year. If your firm places the payments into an account earning 10% per year, how much money will be in the account after collecting the last payment?

a) $99,000
b) $98,000
c) $88,500
d) $85,000

Answer 1

b) $98,000

Step-by-step explanation:

Here we need to find out the Future value of collecting the last payments .

Already we know the formula for Future value .

FV = Co*( 1 + r)^n

For today:

Future value ( FV ) = 50,000* ( 1 + 0.10)^{2}

= 50,000* ( 1.1)^{2}

= $60500

Future value ( FV ) = $60500

For next year:

Future value ( FV ) = 25,000* ( 1.1)^{1}

= 25,000 * 1.1

= $27500

Future value ( FV ) = $27500

For the following year:

Future value ( FV ) = 10,000*( 1.1)^{0}

= 10,000 * 1

= $10,000

Future value ( FV ) = $10,000

money in the account after the last payment

= today + next year + following year

= $60500 + $27500 + $10,000

= $98,000

Therefore, The money that will be in the account after collecting the last payment is $98,000.