Question

One year ago, the Jenkins Family Fun Center deposited $5,200 into an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $7,000 to this account. They plan on making a final deposit of $9,200 to the account next year. How much will be available when they are ready to buy the equipment, assuming they earn a rate of return of 6 percent?

Answer 1

The amount that will be available when they are ready to buy the equipment is $27,410.90.

Step-by-step explanation:

This can be calculated as follows:

Future value = Present value * (100% + rate of return)^number of years the money is in deposit …….. (1)

Using equation (1), we have:

Future value of the amount deposited last year = $5,200 * (100% + 6%)^5 = $6,958.77

Future value of the amount deposited today = $7,000 * (100% + 6%)^4 = $8,837.34

Future value of the amount to be deposited next year = $9,200 * (100% + 6%)^4 = $11,614.79

Amount that will be available = Future value of the amount deposited last year + Future value of the amount deposited today + Future value of the amount to be deposited next year = $6,958.77 + $8,837.34 + $11,614.79 = $27,410.90