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 $ 9 comma 918 in it and pays an interest rate of 11 %.

a. How much money would be in the account of you left the money there until your 25th birthday?
b. What if you left the money until your 65th birthday?
c. How much money did your grandfather originally put into the account?

a. $20,591.36

b. $1,338,456.02

c. $1,515.69

Explanation:

a.

Future Value = FV = ?

Present Value = PV = $9,918

Interest Rate = i = 11% = 0.11

Number of compounding period = n = ?

To calculate the number of compounding period 'n' we will subtract 18 from 25;

n = 25 - 18 = 7 years

Now let us substitute the given values in the following formula;

FV = PV

FV = 9918

FV = 9918

FV = 9918 x 2.0762

FV = 20,591.3564

FV = 20,591.36

Hence, If I leave the money in the account till my 25th birthday, I will get $20,591.36.

b.

Future Value = FV = ?

Present Value = PV = $9,918

Interest Rate = i = 11% = 0.11

Number of compounding peiod = n = ?

To calculate the number of compounding period 'n' we will subtract 18 from 65;

n = 65 - 18 = 47 years

Now let us substitute the given values in the following formula;

FV = PV

FV = 9918  

FV = 9918

FV = 9918 x 134.9522

FV = 1,338,456.0248

FV = 1,338,456.02

Hence, If I leave the money in the account till my 65th birthday, I will get $1,338,456.02.

c.

Future Value = FV = $9,918

Present Value = PV = ?

Interest Rate = i = 11% = 0.11

Number of compounding period = n = 18

The money my grandfather put into the bank account the day I was born can be calculated as follows;

FV = PV

PV =

PV =

PV =

PV =

PV = 1,515.6904

PV = 1,515.69

Hence, the amount that my grand father deposited into the account on the day I was born was $1,515.69.

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