Question:
Janet Taylor Casual Wear has $75,000 in a bank account as of December 31, 2011. If the company plans
on depositing $4,000 in the account at the end of each of the next 3 years (2012, 2013, and 2014) and all
amounts in the account earn 8% per year, what will the account balance be at December 31, 2014? Ignore
the effect of income taxes.
a. $ 87,000
b. $ 88,000
c. $ 96,070
d. $107,500
Answer:
d. Both future value tables will be used because the $75,000 already in the account will be multiplied
times the future value factor of 1.26 to determine the amount three years hence, or $94,500.
The three payments of $4,000 represent an ordinary annuity. Multiplying the three-period
annuity factor (3.25) by the payment amount ($4,000) results in a future value of the annuity
of $13,000. Adding the two elements together produces a total account balance of $107,500.
Janet Taylor Casual Wear has $75,000 in a bank account as of December 31, 2011. If the company plans
on depositing $4,000 in the account at the end of each of the next 3 years (2012, 2013, and 2014) and all
amounts in the account earn 8% per year, what will the account balance be at December 31, 2014? Ignore
the effect of income taxes.
a. $ 87,000
b. $ 88,000
c. $ 96,070
d. $107,500
Answer:
d. Both future value tables will be used because the $75,000 already in the account will be multiplied
times the future value factor of 1.26 to determine the amount three years hence, or $94,500.
The three payments of $4,000 represent an ordinary annuity. Multiplying the three-period
annuity factor (3.25) by the payment amount ($4,000) results in a future value of the annuity
of $13,000. Adding the two elements together produces a total account balance of $107,500.
