Question

Leslie McCormack is in the spring quarter of her freshman year of college. She and her friends already are planning a trip to Europe after graduation in a little over three years. Leslie would like to contribute to a savings account over the next three years in order to accumulate enough money to take the trip. Assume an interest rate of 18%, compounded quarterly. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) How much will she accumulate in three years by depositing $700 at the end of each of the next 12 quarters, beginning three months from now? (Round your interest rate to 1 decimal place.)

Answer 1

$10,824.82

Step-by-step explanation:

Given the following :

Annual Interest rate = 18%

Quarterly deposit = $700

Since it is compounded quarterly : Interest rate / 4 = 18% / 4 = 4.5% = 0.045

Time = 3years, hence, period (4 times a year for 3 years) = 3 * 4 = 12 periods

Future value of annuity factor (FVAF) :

[(1 + i)^n - 1] / i

[(1 + 0.045)^12 - 1] / 0.045

[1.69588 - 1] / 0.045

= 15.46

Hence,

Quarterly deposit × FVAF

$700 × (15.46)

= $10,824.82