One year ago, the Jenkins Family Fun Center deposited $4,300 into an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $6,100 to this account. They plan on making a final deposit of $8,300 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 6 percent

Amount available when ready to buy the equipment = $22,020.

Explanation:

Year 1:

Opening balance = nil

Deposit = 4,300 (A)

Interest on deposit received = $4,300×6% = $258 (B)

Closing balance at the end of year 1 (A+B) = Cash deposit + interest

Closing balance at the end of year 1 (A+B) = $4,300 + $258

Closing balance at the end of year 1 (A+B) = $4,558

*This closing balance of $4,558 will appear as opening balance at the start of year 2

Year 2:

Opening balance = $4,558

Deposit in year 2 = $6,100

Total amount = Opening balance + deposit in year 2

Total amount = $4,558 + $6,100

Total amount = $10,658

Interest on total amount= $10,658 ×6%

Interest on total amount = $640

Total closing balance = Amount + interest

Total closing balance = $10,658 + $640

Total closing balance = $11,298

*This closing balance of $11,298 will appear as opening balance at the start of year 3:

Year 3:

Opening balance = $11,298

Final deposit = $8,300

Total amount = $11,298 + $8,300

Total amount = $19,598 (A)

Interest at 6% = $19,598 × 6%

Interest at 6% = 1,176 (B)

Closing balance (A+B) = $19,598 + $1,176

Closing balance (A+B) = $20,774

*This closing balance of $20,774 will appear as opening balance at the start of year 4:

Year 4:

In year 4, there is no more deposit made, therefore, only the interest will be earned on the closing balance of the account.

Opening balance (A) = $20,774

Interest (6%) = $20,774 × 6%

Interest (6%) = $1,246 (B)

Total amount (A+B) = $20,774 + $1,246

Total amount (A+B) = $22,020

The amount of $22,020 will be available, when they will be ready to buy the new equipment at the end of four years.

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