On January 1, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in an investment account for you. On the basis of a budget, you estimate that the trip currently would cost $15,000. Being the generous and sweet lady she is, your grandmother decided to deposit $3,500 in the fund at the end of each of the next four years, starting on December 31, 2018. The account will earn 6 percent annual interest, which will be added to the account at each year-end. Required:
How much interest revenue did the fund earn in 2015, 2016, 2017, and 2018?

nterest earned for year 1 is zero because the investment made is at the end of the year

Interest earned for year 2 is $210

Interest earned for year 3 is $433

Interest  earned for year 4 is $669

Explanation:

We will use the annuity formula to compute the net interest earned for the next 4 years.

Annuity Value = Present Value  * Annuity Factor

Here

Annuity factor = [1 - (1 + r)^-n] / r

r is 6%

n is 4 years

The present value is $3500

By putting above values in the equation we have:

Annuity Value = $3500 * [1 - (1 + 6%)^-4] / 6%

= $3500 * 4.374616 = $15,311.156

This is the annuity value of the yearly investment of $3500 for 4 consecutive years.

The interest portion = $15,311.156 - ($3500 * 4) = $1,311.156

Interest earned for year 1 is zero because the investment made is at the end of the year

Interest earned for year 2 =  ($3500 * (1.06)) - $3500 = $210

Interest earned for year 3 = ($3500 * (1.06)^2) - $3500) = $433

Interest  earned for year 4 = ($3500 * (1.06)^3) - $3500 = $669

nterest earned for year 1 is zero because the investment made is at the end of the year

Interest earned for year 2 is $210

Interest earned for year 3 is $433

Interest  earned for year 4 is $669

Explanation:

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