Question

You invest $250 every year for 12 years. The annual interest rate is 5%. However, you miss the last 2 payments. How much do you have at the end of the 12 years? Show your work in order to receive full credit.

Answer 1

the last 2 payments are missed. hence only 10 payments are made.

First, we calculate the ending value after 10 years :

the ending value after 10 years is calculated in Excel using the FV formula with these inputs :

rate = 5%

nper = 10

pmt = 250

The ending value after 10 years = $3,144.47

This ending value of $3,144.47 earns compound interest for 2 years at 5%. However, no payments are made.

The value at end of 12 years = $3,144.47 * (1 + 5%)^2 ==> $3,466.78