A woman deposits $11 comma 000 at the end of each year for 15 years in an account paying 5 % interest compounded annually. (a) Find the final amount she will have on deposit. (b) Her brother-in-law works in a bank that pays 4 % compounded annually. If she deposits money in this bank instead of the other one, how much will she have in her account? (c) How much would she lose over 15 years by using her brother-in-law's bank?

Answer and Explanation:

The computation is shown below:

a. The final amount she will have on deposit is

Future value = Present value * { (1 + interest rate) ^number of years - 1} : interest rate

= $11,000 * { (1 + 0.05) ^15 - 1} : 0.05

= $11,000 * 21.57856359

= $237,364.20

b. The amount at 4% is

Future value = Present value * { (1 + interest rate) ^number of years - 1} : interest rate

= $11,000 * { (1 + 0.04) ^15 - 1} : 0.04

= $11,000 * 20.02358764

= $220,259.46

c. The losing amount in case when she used her brother-in-law's bank is

= $237,364.20 - $220,259.46

= $17,104.74

We simply applied the above formula