Question

Jeanie has deposited 33,000 today in an account which will earn 10 percent annually. She plans to leave the funds in this account for seven years earning interest. If the goal of this deposit is to cover a future obligation of 65,000, what recommendation would you make to Jeanie?

Answer 1

Jeanie's question is about whether her deposit of $33,000 at 10% annual interest for seven years will reach her goal of $65,000. To answer, calculate the future value using the compound interest formula. If the result is less than $65,000, she will have to adjust her investment.

Step-by-step explanation:

The student's question is related to compound interest and whether Jeanie's initial deposit of $33,000 at an annual interest rate of 10% for seven years will grow to meet a future obligation of $65,000.

Calculating Future Value

To determine if Jeanie's investment goal is achievable, we use the future value formula for compound interest:

FV = PV (1 + r)^n

Where:
FV = Future Value
PV = Present Value ($33,000)
r = Annual interest rate (10% or 0.10)
n = Number of periods (7 years)

Applying these values:

FV = 33,000 * (1 + 0.10)^7

Calculating this gives us a future value for Jeanie's investment. If it is less than $65,000, she may need to deposit more or extend the investment period to meet her obligation.