Question

Suppose that you make a series of annual deposits into a bank account that pays 12% interest. The initial deposit at the end of the first year is $1,200. The deposit amounts increase by $600 in each of the next 5 years. How much would you have immediately after the 6th deposit

Answer 1

$20,314.17

Step-by-step explanation:

To find the 6th deposit, we use the future value formula for each yearly payment.

PV(1 + i) FV

FV (year 1) = $1200(1 + 0.12)5 = $2114.81

FV (year 2) = $1800(1 + 0.12)4 = $2832.33

FV (year 3) = $2400(1 + 0.12)3 = $3371.83

FV (year 4) = $3000(1 + 0.12)2 = $3763.2

FV (year 5) = $3600(1 + 0.12)1 = $4032

PV (year 6) = $4200

Total amount you will have after the 6th deposit is = $20,314.17