Question: Suppose you are saving for your down payment on a new car. Over the next four years you will save increasing amounts and expect to

  1. Suppose you are saving for your down payment on a new car. Over the next four years you will save increasing amounts and expect to earn 12% on your savings. Today you are ready to deposit $1,000, at the end of the year you will deposit $1,100, then $1,210 and finally in the third year 1,331.
    1. Calculate the ending balance at the start of year 4 by compounding each cashflow and taking the sum in year four.
    2. Calculate the ending balance at the start of year 4 by using the growing annuity formula. (Hint you will need to find the growth rate and think carefully about the timing of the cashflows.)

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