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Brenda plans to reduce her spending by $80 a month. Calculate the future value of this increase in saving over the next 10 years. (Assume an annual deposit to her savings account, and an annual interest rate of 5 percent.)

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Answer:

Explanation:

Formula to be used is Future value of annuity, FVA = Annuity*{[(1+i)^n -1}/i;

i - interest rate; in this case i=5%

n - number of years; in this case n=10

Annuity = 12*80 =960, the yearly amount reduced from spending

So FVA = 960*{[(1+0.05)^10 - 1]}/0.05 = 960*0.62889/0.05 = 960*12.5778 =

= 12,074.68

So the future value of these savings is 12,074.68

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