Your Grandmother's Savings Account Gift Calculation
Calculate the Balance in the Savings Account on Your 18th Birthday
Explanation
The investment can be described as an ordinary annuity. An ordinary annuity is a series of equal periodic cash flows that occur for a certain number of years. The amount the investment will accrue principal plus interest is known as the future value of the annuity. It is determined as follows: FV = A × ( (1+r)^n -1 ) / r FV - Future Value, A = $1,000, r = 4% (0.04), n = 18 Calculating FV: FV = $1,000 × ( ( (1+0.04)^(18) - 1 ) / 0.04 FV = $1,000 × 25.64541288 ≈ $25,645.41 The amount in the account on the 18th birthday will be $25,645.41.To calculate the future balance of the savings account, what formula is used?
The formula used to calculate the future balance of the savings account is the future value of a series formula, which involves compound interest calculations.