You plan to invest $600 in your savings account this year and then you intend to increase the amount that you invest by 3% each year. If you invest in a savings account each that earns an effective annual interest rate of 7% how much money will you have in your account in 16 years?

The correct answer is $20,211.84.

Explanation:

According to the scenario, the given data are as follows:

Payments (PMT) = $600

Interest rate = 7%

Growth rate = 3%

Time = 16 yeras

So, future value of growing annuity can be calculated by using following formula:

FV of growing annuity = Payment * ((1 + interest rate) ^n - (1 + Growth rate) ^n) / (Interest rate - Growth rate)

= 600 * ((1.07) ^16 - 1.03^16) / (.07 -.03)

= 600 * (2.95216374857 - 1.6047064391) / (0.04)

= 600 * 33.6864

= $20,211.84

Hence, the correct answer is $20,211.84.