Question

you want to buy a new ski boat 2 years from now, and you plan to save $7,000 per year, beginning one year from today. you will deposit your savings in an account that pays 6.2% interest. how much will you have just after you make your second deposit, 2 years from now

Answer 1

Answer: $14429

Step-by-step explanation:

For this question, we will use the annuity formula to solve. The future value of an annuity is given as:

= C × ([(1+i)^n - 1] / i)

where,

C = The Cash flow per period

= $7000

i = the interest rate

= 6.2%

n = number of years

= 2

Future value of annuity will now be:

= 7000 × ([(1+0.062)²- 1]/0.062)

= 7000 × ([1.062)² - 1]/0.062)

= 7000 × [(1.1278 - 1)/0.062)]

= 7000 × (0.1278/ 0.062)

= 7000 × 2.0613

= $14429

The answer is $14429

Answer 2

$14,434

Step-by-step explanation:

The question is asking to find the future value of making a payment of $7,000 every year for two years

The formula for finding future value =

FV = A x annuity factor

Annuity factor = {[(1+r) ^N ] - 1} / r

A = amount = $7,000

R = interest rate = 6.2%

N = 2

[(1.062) ^2 - 1 ] / 0.062 = 2.062

2.062 x $7,000 = $14,434

I hope my answer helps you