Homework Sourse39 If you deposit 100 in one year 200 in two years and 300 i
39. If you deposit $100 in one year, $200 in two years, and $300 in three years, how much will you have in three years? How much of this is interest? How much will you have in five years if you don’t add additional amounts? Assume a 7 percent interest rate throughout.
Solution
1st part:
future value = amount deposited *(1+r)^n
r is interest rate =7%=>0.07.
n = number of years.
the following table shows the amount at the end of three years:
2nd part:
interest part = total future value - total principal = $628.49 - 600
=>$28.49.
3rd part.
amount in 5 years if no amount is added
=> amount at end of 3rd year *(1+r)^n
r= 7% =>0.07.
n = 2 years..........(from 3rd year to 5th year)
$628.49 *(1.07)^2
=>$719.56.
we will have $719.56 in 5 years if nothing is added.
| year | deposit amount | number of years till end of third year | value at end of third year |
| 1 | $100 | 2 | ($100*(1.07)^2)=>$114.49 |
| 2 | $200 | 1 | ($200*(1.07)^1)=>$214.00 |
| 3 | $300 | 0 | ($300*(1.07)^0)=>$300 |
| total principal | $600 | total future value in three years | 628.49 |
