Question

You have savings of $100. You plan to save another $100 at the beginning of each year for 5 years. The account pays annual interest of 8 percent, compounded quarterly. The ending balance (principal plus interest) will be $______

at the end of 5 years.

Answer 1

Step-by-step explanation:

This could be a starting investment, or the starting amount of a loan. Interest, in its most simple form, is calculated as a percent of the principal. For example, if you borrowed $100 from a friend and agree to repay it with 5% interest, then the ... You obtain a $1,000 bond that pays 5% interest annually that matures in 5 years.

Answer 2

$786.70

Step-by-step explanation:

The future value of each cash flow can be determined using the future value formula for a single cash flow provided below:

FV=PV*(1+r)^n

PV=amount invested

r=quarterly interest rate=8%/4=2%

n=the number of quarters that each cash flow is invested

n:

The n for the current savings and the first $100 savings is 20 since they would be invested for the next 5 years(5 years*4 quarters per year), the second deposit of $100 would have n of 16 sinc it would be invested for 4 years(16 quarters) and so on.

FV=($100+$100)*(1+2%)^20+$100*(1+2%)^16+$100*(1+2%)^12++$100*(1+2%)^8+$100*(1+2%)^4

FV=$786.70