Question

How much money will be in an account into which $500 per month is deposited for 8 years, if the interest rate is 6% compounded monthly?

Answer 1

The amount is computed as shown below:

Future value = Monthly deposits x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 6% / 12 (Since the interest is compounded monthly, hence divided by 12)

= 0.50%

n is computed as follows:

= 8 x 12 (Since the interest is compounded monthly, hence multiplied by 12)

= 96

So, the amount will be as follows:

= $ 500 x [ [ (1 + 0.005)⁹⁶ - 1 ] / 0.005]

= $ 500 x 122.8285417

= $ 61,414.27 Approximately

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