Leslie McCormack is in the spring quarter of her freshman ye

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 10%, 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 $620 at the end of each of the next 12 quarters, beginning three months from now?

Solution

Accumulate amount at the each of the next 12 quarters = $8,553

Accumulate amount at the each of the next 12 quarters will be the future value of an ordinary annuity

Interest Rate = 10% / 4 Quarter = 2.5%

Period = 12

Future Value of Annuity = P x [{(1+ r)ⁿ - 1} / r ]

= $620 x [ { ( 1.025)¹² – 1 } / 0.025 ]

= $620 x [0.344888 / 0.025 ]

= $620 x 13.79555

= $8,553.24

= $8,553 (Rounded)