Question

I save money to buy a house. I have collected € 1000 today and I am expected to save an additional amount of € 1000 at the end of each of the next 6 years. Assuming the deposit rate is 12%, how much money will I have accumulated after 6 years?

Answer 1

Answer : Calculation of Money accumulated after 6 years :

We First need to calculate Future value of Annuity of 1st 6 payments :

Future Value of Annuity = Periodic Payment * {[(1+ r)^n - 1 ] / r }

where

rate of interest is 12% or 0.12

n is the number of years i.e 6

Periodic payment is 1000

Future Value of Annuity = 1000 * {[(1+ 0.12)^6 - 1 ] / 0.12 }

= 1000 * {[1.97382268518 - 1] / 0.12}

= 1000 * 8.11518904316

= 8115.18904316 or 8115.19

Money accumulated after 6 year will include 6th payment also .

Therefore :

Money Accumulated = 8115.19 + 1000 = 9,115.19