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    Future Value

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    Mary and Joe would like to save up $10,000 by the end of 3 years from now to buy new furniture for their home. They currently have $1,500. in a saving account set aside for the furniture. They would like to make 3 equal year end deposit to this savings account to pay for the furniture when they purchase it three years from now assuming that this account pay 6% interest how much should the year end payment be.

    Do in 2 steps:
    Step 1: Future Value of a lump sum-equation A-1
    Step 2: Future Value of an ordinary annuity (Solve the PMT-also known as A) rearrange A-2

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    Solution Preview

    Currently they have $1,500 in savings. The future value of this savings in 3 years at 6% is
    FV = 1,500 (1+6%)^3 = $1,786.52
    Total ...

    Solution Summary

    The solution explains how to calculate the future value of a lump sum and an ordinary annuity.