Why on this question are you taking 4000 by the power of 6 vs 8? Refer to the solution below. I am confused as to why they are using 6 vs the power of 8. Can someone help?
A saver deposits the following amounts in an account paying a stated annual rate of 4%, compounded semiannually:
Year End of Year Deposits ($
1) 4,000
2) 8,000
3) 7,000
4) 10,000
Q. At the end of Year 4, the value of the account is closest to:
- $30,432
- $30,447
- $31,677
B is correct. To solve for the future value of unequal cash flows, compute the future value of each payment as of Year 4 at the semiannual rate of 2%, and then sum the individual future values, as follows:
YearEnd of Year Deposits ($)FactorFuture Value ($)
1 4,000(1.02)^6 =4,504.65
2 8,000(1.02)^4 =8,659.46
3 7,000(1.02)^2 = 7,282.80
4 10,000(1.02)^0 = 10,000.00
Sum =30,446.91