Question

Suppose that you make a series of annual deposits into a bank account that pays 10% interest. The initial deposit at the end of the first year is $1,200. The deposit amount decline by $200 in each of the next four years. How much would you have immediately after the fifth deposit? Group of answer choices

Answer 1

You will have $5,116 in the account.

Step-by-step explanation:

a) End of 1st-year deposit of $1,200 will become $1,757 ($1,200 * 1.464) in four years' time.

b) End of 2nd-year deposit of $1,000 will become $1,331 ($1,000 * 1.331) in three years' time.

c) End of 3rd-year deposit of $800 will become $968 ($800 * 1.21) in two years' time.

d) End of 4th-year deposit of $600 will become $660 ($600 * 1.1) in a year's time.

e) End of 5th-year deposit of $400 will be $400 in 0 year's time.

f) The total will be $5,117 (a+b+c+d+e).

g) The future value factor is equal to 1.1ⁿ, where the discount factor is 10%.