One year ago, the Jenkins Family Fun Center deposited $4,800 into an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $6,600 to this account. They plan on making a final deposit of $8,800 to the account next year. How much will be available when they are ready to buy the equipment, assuming they earn a rate of return of 9 percent

$25,778

Explanation:

During the first year, $4,800 were deposited. Using the future value of an investment formula, after one year, this amount becomes:

X = 4,800 (1+0.09)

  = 5,232

Now, they add $6,600 to that amount. Now we have a total of:

6,600 + 5,232 = 11,832

During year two, the amount above becomes:

X = 11,832 (1+0.09)

  = 12,897

And at the end of year two, $8,800 are added. Now we have a total of:

12,897 + 8,800 = 21,697

During years three and four, that amount finally becomes:

X = 21,697 (1+0.09)^2

   = 25.778

Thus, after four years, the Jenkisn Family Fun Center will have $25,778 to buy the equipment.

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