pedigreeuk
I'm English, not British!
+113|6741|Rotherham, England
My girlfriend was doing some maths revision yesterday and came across these 2 questions, only the first had a solution in the answer section, the second just had a figure. So the questions are as follows.

1.) Tom puts £200 annually into a bank account earning 11.5% compound interest per year. How much will tom have after 12 years.


2.) Lisa puts £2000 annually into a bank account earning 10.5% compound interest per annum. How much money will be in Lisa's account at the end of the eight year?



So my problem is this:

Question 1 I got right anyway and my answer matched the one in the book, But question 2 still baffles me, I can get the answer it says in the book but not in an actual formulae. So I just wondered if anyone here can tell me what it should be. My workings are as follows.

Question 1 Solution

200(1-1.11512)
-------------------   =  4682.28
    (1-1.115)

Answer in Book = 4682.28


Question 2 Solution

2000(1-1.1058)
-----------------     =  23291.22
    (1-1.105)

Answer in book = 25736.79

Which is made by taking it over 9 years and subtracting an annual payment of £2000

2000(1-1.1059)
-----------------  - 2000   =  25736.79
    (1-1.105)


Someone please tell me whose right, me or the book.

+1 For anything constructive.
malarkeycoon
Member
+16|6610|Cardiff
I just worked it out in excel and got the books answer. Not sure of the reasoning. I am guessing there is something slightly wrong with your formula but I couldn't tell you what it is because my maths is arse. Excel is my friend.

1    2210.00
2    4652.05
3    7350.52
4    10332.32
5    13627.21
6    17268.07
7    21291.22
8    25736.80

(2000 + Previous Years Sum)*1.105

Last edited by malarkeycoon (2006-12-18 03:52:52)

cospengle
Member
+140|6457|Armidale, NSW, Australia
I used excel using the formula =2000*(1-1.105^8)/(1-1.105)

I got your answer. The book is wrong.

Markley, after 1 year there will be $4210, because the next $2000 goes in on that day. Same with all of them. $25736.80 is the amount before the last $2000 goes in.

But then again I'm probably wrong.
aardfrith
Δ > x > ¥
+145|6762

pedigreeuk wrote:

My girlfriend was doing some maths revision yesterday and came across these 2 questions, only the first had a solution in the answer section, the second just had a figure. So the questions are as follows.

1.) Tom puts £200 annually into a bank account earning 11.5% compound interest per year. How much will tom have after 12 years.


2.) Lisa puts £2000 annually into a bank account earning 10.5% compound interest per annum. How much money will be in Lisa's account at the end of the eight year?
Well chum, I think the book is wrong.  On the first one, not the second.
Since I have MS Excel, I no longer do complicated maths on paper.  Ignoring that banks round your account (up/down, I don't know) to a whole number of pence, what I originally came up with was:

1.) Year 0.  Put £200 in bank.
     Year 1.  First year of interest.  Account = 423  (200*1.115+200)
     Year 2.  First year of compounding.  Account = 671.65
     ...
     Tear 12. End of period.  Account = 5220.74 (final 200 is not added because this is the end of the bank account)

Note that this is actually one year further on from what your book says is the solution.

2.) Same thing.  End result = 25736.80

In other words, it really comes down to when you think the end of the first year is - is it when the original money is deposited in the account or one year hence?
malarkeycoon
Member
+16|6610|Cardiff
I would have thought that the day they put in the next $2000 would be the first day of the second year, not the end of the first. So if you put $2000 in on the first day of the year, the total in the account at the end of that year is $2210. By making it $4210 you are including the next years $2000.

The confusion lies with when the payments are made. If they payments are made at the beginning of the period the value is $25376. If they are made at the end of the period it is $23291.

Use the FV function in Excel to confirm it for yourself.

cospengle wrote:

I used excel using the formula =2000*(1-1.105^8)/(1-1.105)

I got your answer. The book is wrong.

Markley, after 1 year there will be $4210, because the next $2000 goes in on that day. Same with all of them. $25736.80 is the amount before the last $2000 goes in.

But then again I'm probably wrong.

Last edited by malarkeycoon (2006-12-18 04:35:32)

cospengle
Member
+140|6457|Armidale, NSW, Australia
Yeah you're probably right. That explains how banks make so much money
aardfrith
Δ > x > ¥
+145|6762
If they are giving 10.5% interest, they can't be making that much money.  By the way, where do I sign up for these accounts?  Colombia?
deadawakeing
Ummmmmmmmmmmmm
+145|6452
heyy im learning about compound intrest and standard intrest or w/e on wed
Krauser98
Extra Green Please!
+53|6800|USA! USA! USA!
I've got a final on Monday.  Intro to Java Programming.  Anyone want to take it for me? Difficulty: All coding to be done by hand from memory on plain white paper.
4_Phucsache
Property of BF2s©
+112|6552|Brisbane Australia
Krauser wait till you have to do that in PHP lol and least Java is semi intuitive
Krauser98
Extra Green Please!
+53|6800|USA! USA! USA!
OK, so I lied.  I already took the final and got an 88% on it.  I didn't study at all, because I was stressed over other tests.  My midterm in there however, I studied my ass off (reviewed old quizes, worked through all homework again, made random programs, got drunk) and got a 59%.  Lesson: Studying makes me fail.
4_Phucsache
Property of BF2s©
+112|6552|Brisbane Australia
You need to watch more of the Simpsons. With quotes like "Trying is the first step to failure" therefore we can surmise that if you dont try you wont fail
Eagle
Togs8896 is my evil alter ego
+567|6601|New Hampshire, USA
Well this sucks.  I used to have the formula to figure this out.  Is this for Algebra II?
https://static.bf2s.com/files/user/14407/Sig_Pats.jpg
Masques
Black Panzer Party
+184|6692|Eastern PA
Could be a problem with the book...what edition is it? If it's relatively new there could be errors not discovered as of yet.

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