Your grandfather put some money in an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money for the first time. The account currently has $3996 in it and pays an 8% interest rate.

a. How much money would be in the account if you left the money there until your twenty-fifth birthday?

b. What if you left the money until your sixty-fifth birthday?

c. How much money did your grandfather originally put in the account?

Instructions are below.

Explanation:

Giving the following information:

Value at 18 = $3,996

Interest rate = 8%

To calculate the final value, we need to use the following formula:

FV = PV * (1+i) ^n

A) Number of years = 7

FV = 3,996 * (1.08^7) = $6,848.44

B) Number of years = 47

FV = 3,996 * (1.08^47) = $148,779.12

C) Finally, we need to determine the original investment. We need to isolate the present value from the formula:

PV = FV / (1+i) ^n

PV = 3,996 / (1.08^18)

PV = $999.995