Question

Your grandfather put some money in an account for you on the day you were born. You are now years old and are allowed to withdraw the money for the first time. The account currently has in it and pays an interest rate.

Required:
a. How much money would be in the account if you left the money there until your twenty-fifth birthday?
b. What if you left the money until your sixty-fifth birthday?
c. How much money did your grandfather originally put in the account?

Answer 1

Missing word "You are now 18 years old and are allowed to withdraw the money for the first time. The account currently has $3996 in it and pays an 8% interest rate."

a. At 18 years, future value of current amount (compounded for another 7 years at 8%)

= $3,996 * (1.08)^7

= $3,996 * 1.7138

= $6,848.34

b. At age 65, future value of this amount (compounded for another 40 years at 8%)

= $6,848.44 * (1.08)^40

= $6,848.44 * 21.7245

= $148,779.93

c. Future Value = Present Value * (1 + Interest Rate)^n

So, let initial the money deposited be represented by Y

=> $3,996 = Y * (1.08)^18

=> $3,996 = Y * 3.996

Y = $3,996 / 3.996

Y = $1,000