Question

One year ago, the jenkins family fun center deposited $3,700 in an investment account for the purpose of buying new equipment four years from today. today, they are adding another $5,500 to this account. they plan on making a final deposit of $7,700 to the account next year. how much will be available when they are ready to buy the equipment, assuming they earn a 9 percent rate of return?

Answer 1

If the interest rate is x% on the capital C, to calculate the total money after 1 year we have that we gain C*x and we need to add C. Hence, Money after 1 year= (1+x/100)*C
We have that today, the money in the account is 3700*(1.09)= 4033$. We then add 5500, hence we have that in total we have 4033+5500=9533$. After 1 year, the whole sum is getting multiplied by 1.09, hence we have that 1 year after today the total money is: 9533*1.09=10390.97$. We add a further 7700$ to this account, so at the start of the second year, the total sum will be 18090.97$. Then, we will wait for 3 years to get the money on this account. Hence, we have that since every year we need to multiply the sum by 1.09, after 3 years we need to multiply by
`(1.09)^3`. So, the total sum available after with this plan is: 18090.97*(1.09)^3=23428.33$.

This is much more that the sum of the payments that is 16.900$ and it shows how important investing and banking your money is.