Explore BrainMass

Annuities, Compounds Interest and Sinking Funds

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

Joseph wants to deposit $1,500 at year-end for 35 years at 8%. What will his result be? If Joseph deposits $1,000 at the end of each year for the next 5 years at 8% compounded annually, $1,500 at the end of years 6-10 at 8% compounded annually, and $2,000 at the end of years 11-35 at 5% compounded annually, how much would he accumulate at the end of 35 years? Assume that any balances from earlier deposits would continue to earn the same rate of annual interest.

© BrainMass Inc. brainmass.com September 24, 2018, 7:22 am ad1c9bdddf - https://brainmass.com/business/interest-rates/annuities-compound-interest-sinking-funds-263775

Solution Preview

Formula for calculation of future value of annunity=
S = R[ (1+i)^n -1]/i
Where, S = future valuation
R = periodic payment
i = Interest rate per period
n= number of periods
Here, R= $1500
n = 35
So, S= 1500[ {1+(8/100)}^35 -1]/(8/100) = $258475.21

In the first case, R1= $1000

Solution Summary

This solution is comprised of detailed explanation and step-by-step calculation of the given problem and provides students with a clear perspective of the underlying concepts.