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18 April, 04:02

Brenda plans to reduce her spending by $80 a month. Calculate the future value of this increase in saving over the next 10 years. (Assume an annual deposit to her savings account, and an annual interest rate of 5 percent.)

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  1. 18 April, 05:11
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    Formula to be used is Future value of annuity, FVA = Annuity*{[ (1+i) ^n - 1}/i;

    i - interest rate; in this case i=5%

    n - number of years; in this case n=10

    Annuity = 12*80 = 960, the yearly amount reduced from spending

    So FVA = 960*{[ (1+0.05) ^10 - 1]}/0.05 = 960*0.62889/0.05 = 960*12.5778 =

    = 12,074.68

    So the future value of these savings is 12,074.68
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