Question

Jenny starts saving for retirement. She contributes $300 per month with an APR of 2.99%. She plans to do this for 35 years before retiring. Using Excel, Jenny's account would have a balance of $222,015.58 after 35 years.

How much did Jenny contribute to the account for over 35 years?

Answer 1

Given APR = 2.99%

Hence the monthly interest is 2.99/12 = 0.249167

It is pertinent to note that we divided by 12 as APR is given if effective yeild is mentioned then we will compound.

This is Ordinary Annuity

We can also use future value of annuity using the following formula

P*((1+r)ⁿ - 1)/r

Where P = Equalised annual payment

n = number of periods

r = rate on interest

222,015.58 = 300 * ((1.002492)⁴²⁰ - 1)/0.002492

The total Contribution in the form of cash is 1,26,000 and in in the form of interest is 96,015.73

Note - We can simply say that she has contributed at 300*35*12 = 1,26,000