Question

Imagine Homer Simpson actually invested $50,000 seven years ago at a 6.5 % and monthly compounding. If he invests an additional $300 a month starting now for 20 years at 3 percent annual rate/with monthly compounding. How much money will Homer have 20 years from now? Assume mo. compounding for whole 27 years.

***Please use financial calculator with steps written down for the keystrokes***

Answer 1

=$50,000 after 20 years from now (also considering last 7 years)
=+50000*((100%+(6.5/12)%)^(27*12))
=$287,806.10

Then for $300 annuity deposits, we shall first find out Future Value Annuity Factor for 20*12=240 periods at interest rate of 3%/12=0.25% per period which is found out using formula:

= ([1 + Interest Rate]^Number of periods - 1 ) / Interest Rate
= +((1.0025^(12*20))-1)/0.0025
=328.31

Now, Total amount after 20 years will be
=(328.31*$300)+$287,806.10
=$ 386,297.00

Hope it helps you in your studies.Kindly give a thumbs up if you like it. ?




It is being assumed that 6.5% of rate will remain same for $50,000 invested 7 years ago.And new rate will only be applicable for new deposits.