Question

you plan to travel five years from now and you can save 7000 end of each year how much will be in your account at the end of the 5th year if you believe you will receive a return of 8.0% per year

Answer 1

Using the future value of an annuity formula with annual payments of $7,000 and an 8.0% annual return, the future value at the end of the 5th year is calculated to be $41,066.2.

Step-by-step explanation:

Calculating Future Value of an Annuity

To calculate the amount that will be in the account at the end of the 5th year, we can use the future value of an annuity formula. Since the student plans to save $7,000 at the end of each year with an 8.0% return per year, the formula for the future value of an annuity due (payments made at the end of the period) can be applied:

Future Value of Annuity (FVA) = Pmt * (((1 + r)^n - 1) / r) where:

• Pmt = Payment amount per period ($7,000)
• r = Periodic interest rate (0.08)
• n = Total number of payments (5)

Now, inserting the values we get:

FVA = $7,000 * (((1 + 0.08)^5 - 1) / 0.08)

Let's compute the future value:

FVA = $7,000 * (((1.08)^5 - 1) / 0.08)

FVA = $7,000 * ((1.469328 - 1) / 0.08)

FVA = $7,000 * (5.8666)

FVA = $41,066.2

Therefore, at the end of the 5th year, the student will have $41,066.2 in their account.