Question

Tamika opened a money market account that has a 4. 25% annual interest rate, compounded annually. She deposits $1,750 into the account each year. How much interest will the account earn after 15 years?.

Answer 1

If Timika deposits $1,750 into the account each year, after 15 years she will earn interest of  $9,449.4

The problem can be solved using the formula for the future value of an ordinary annuity.

FV = C x [(1 + i)ⁿ - 1]/i

Where
FV = future value

C = cash flow per period or annuity payment

i = interest rate per period

n = number of periods

Parameters given in the problem:

i = 4.25% = 0.0425

n = 15

C = 1,750

Plug these parameters into the formula:

FV = 1,750 x [(1 + 0.0425)¹⁵ - 1] / 0.0425

FV = 35,699.40

This future value consists of total deposit and interest

Total deposit = $1,750 x 15 = $26,250

Hence,

Interest = 35,699.40 - 26,250 = $9,449.4

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