4. Looking forward - Future value Compounding Interest You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that, based on your other obligations, you can save 6,875.00 per year via an annual, single year-end deposit. You are 40 years old now, so your money will grow for the next 25 years until you turn 65. You will open a savings account at the US Bank branch near your home. Its savings accounts are paying 6% interest. The following table shows the future value factors for various periods and interest rates: Future Value of an Annuity Factor Year 2% 3% 5% 6% 8% 9% 10% 10 10.950 11.460 12.578 13.180 14.487 15.190 15.937 12 13.412 14.190 15.917 16.870 18.977 20.140 21.384 15 17.293 18.600 21.578 23.270 27.152 29.360 31.772 20 24.297 26.870 33.066 36.780 45.762 51.160 57.274 25 32.030 36.460 47.726 54.860 73.105 84.700 98.346 30 40.567 47.570 66.438 79.060 113.282 136.300 164.491 35 49.994 60.460 90.318 111.430 172.314 215.700 271.018 40 60.401 75.400 120.797 154.760 259.052 337.870 442.580 Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. Annual savings Years over which it will grow Interest rate % Interest factor What will be the value of this money in 25 years? (Note: Round to two decimal places.) You began savings at age 40. If you had started five years earlier, so that your funds would grow for years, what would your nest egg be worth, assuming the same interest rate and annual savings amount? (Note: Round to two decimal places.) Suppose that a new bank in town offers 8% interest. How much would your yearly deposits be worth if you open a savings account there, assuming that your funds are invested for 25 years and all other factors remain the same? Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. (Hint: Remember that the FVA factor is based on the new interest rate now.) Annual savings Years over which it will grow Interest rate % Interest factor What will be the value of this money in 25 years? (Note: Round to two decimal places.) Again, if you had started your savings program five years earlier, what would your nest egg be worth, assuming that your funds were invested at this higher interest rate, the annual savings amount remains the same, and the funds are invested for years? (Note: Round to two decimal places.)

4. Looking forward - Future value Compounding Interest You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that, based on your other obligations, you can save 6,875.00 per year via an annual, single year-end deposit. You are 40 years old now, so your money will grow for the next 25 years until you turn 65. You will open a savings account at the US Bank branch near your home. Its savings accounts are paying 6% interest. The following table shows the future value factors for various periods and interest rates: Future Value of an Annuity Factor Year 2% 3% 5% 6% 8% 9% 10% 10 10.950 11.460 12.578 13.180 14.487 15.190 15.937 12 13.412 14.190 15.917 16.870 18.977 20.140 21.384 15 17.293 18.600 21.578 23.270 27.152 29.360 31.772 20 24.297 26.870 33.066 36.780 45.762 51.160 57.274 25 32.030 36.460 47.726 54.860 73.105 84.700 98.346 30 40.567 47.570 66.438 79.060 113.282 136.300 164.491 35 49.994 60.460 90.318 111.430 172.314 215.700 271.018 40 60.401 75.400 120.797 154.760 259.052 337.870 442.580 Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. Annual savings Years over which it will grow Interest rate % Interest factor What will be the value of this money in 25 years? (Note: Round to two decimal places.) You began savings at age 40. If you had started five years earlier, so that your funds would grow for years, what would your nest egg be worth, assuming the same interest rate and annual savings amount? (Note: Round to two decimal places.) Suppose that a new bank in town offers 8% interest. How much would your yearly deposits be worth if you open a savings account there, assuming that your funds are invested for 25 years and all other factors remain the same? Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. (Hint: Remember that the FVA factor is based on the new interest rate now.) Annual savings Years over which it will grow Interest rate % Interest factor What will be the value of this money in 25 years? (Note: Round to two decimal places.) Again, if you had started your savings program five years earlier, what would your nest egg be worth, assuming that your funds were invested at this higher interest rate, the annual savings amount remains the same, and the funds are invested for years? (Note: Round to two decimal places.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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4. Looking forward - Future value

Compounding Interest

You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that, based on your other obligations, you can save 6,875.00 per year via an annual, single year-end deposit. You are 40 years old now, so your money will grow for the next 25 years until you turn 65. You will open a savings account at the US Bank branch near your home. Its savings accounts are paying 6% interest.

The following table shows the future value factors for various periods and interest rates:

Future Value of an Annuity Factor

Year	2%	3%	5%	6%	8%	9%	10%
10	10.950	11.460	12.578	13.180	14.487	15.190	15.937
12	13.412	14.190	15.917	16.870	18.977	20.140	21.384
15	17.293	18.600	21.578	23.270	27.152	29.360	31.772
20	24.297	26.870	33.066	36.780	45.762	51.160	57.274
25	32.030	36.460	47.726	54.860	73.105	84.700	98.346
30	40.567	47.570	66.438	79.060	113.282	136.300	164.491
35	49.994	60.460	90.318	111.430	172.314	215.700	271.018
40	60.401	75.400	120.797	154.760	259.052	337.870	442.580

Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg.

Annual savings
Years over which it will grow
Interest rate	%
Interest factor

What will be the value of this money in 25 years? (Note: Round to two decimal places.)

You began savings at age 40. If you had started five years earlier, so that your funds would grow for

years, what would your nest egg be worth, assuming the same interest rate and annual savings amount? (Note: Round to two decimal places.)

Suppose that a new bank in town offers 8% interest. How much would your yearly deposits be worth if you open a savings account there, assuming that your funds are invested for 25 years and all other factors remain the same?

Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. (Hint: Remember that the FVA factor is based on the new interest rate now.)

Annual savings
Years over which it will grow
Interest rate	%
Interest factor

What will be the value of this money in 25 years? (Note: Round to two decimal places.)

Again, if you had started your savings program five years earlier, what would your nest egg be worth, assuming that your funds were invested at this higher interest rate, the annual savings amount remains the same, and the funds are invested for

years? (Note: Round to two decimal places.)

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