Your grandfather put some money into an account for you on t

Your grandfather put some money into an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money. The account currently has $5,473 in it and pays an interest rate of 10% How much money would be in the account if you left the money there until your 25th birthday? What if you left the money until your 65th birthday? How much money did your grandfather originally put into the account?

Solution

Future value = P×(1+r)^n

P is payment

r is interest rate per period

n is number of periods

= $5,473×(1+10%)^7

Account balance on 25^th birthday = $10,665.33

Future value = P×(1+r)^n

P is payment

r is interest rate per period

n is number of periods

= $5,473×(1+10%)^47

Account balance on 65^th birthday = $482,704.84

Future value = P×(1+r)^n

P is payment

r is interest rate per period

n is number of periods

$5,473 = P×(1+10%)^18

Amount deposited initially, P = $984.37