Future value. Jack and Jill are saving for a rainy day and decide to put ​$70 away in their local bank every year for the next 25 years. The local​ Up-the-Hill Bank will pay them 5​% on their account. a. If Jack and Jill put the money in the account faithfully at the end of every​ year, how much will they have in it at the end of 25 ​years? b. ​ Unfortunately, Jack had an accident in which he sustained head injuries after only 10 years of savings. The medical bill has come to ​$900. Is there enough in the​ rainy-day fund to cover​ it? a. If Jack and Jill put the money in the account faithfully at the end of every​ year, how much will they have in it at the end of 25 ​years?

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Answer:

a. If Jack and Jill put the money in the account faithfully at the end of every​ year, how much will they have in it at the end of 25 ​years?

The future value = present value x (1 + r)ⁿ = $70 x (1 + 5%)²⁵ = $237.04

b. ​ Unfortunately, Jack had an accident in which he sustained head injuries after only 10 years of savings. The medical bill has come to ​$900. Is there enough in the​ rainy-day fund to cover​ it?

No, the balance in the account is only $114.02, it is not even close to $900. They should try to save a little bit more every year, $70 is not a lot of money.

future value = $70 x (1 + 5%)¹⁰ = $114.02

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