Question

You are saving money to go to graduate school. You've taken your first job and you plan to save $628 each month into the bank account that pays 6.69% compounded monthly for the next five years for your grad school fund. How much money will you accumulate by the end of year five?

Please round your answer to the second decimal without dollar sign. e.g. 1.11

Answer 1

Answer : Calculation of Money accumulated by the end of year five :

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

where r is the rate of interest per period i.e 6.69% / 12 = 0.5575% or 0.005575 (Divided by 12 as given compoundede monthly)

n is the number of periods i.e 5 * 12 = 60

Periodic Payment i.e 628

Future Value of Annuity = 628 * {[(1 + 0.005575)^60 - 1 ] / 0.005575 }

= 628 * {[1.395944 - 1 ] / 0.005575}

= 628 * {0.395944 / 0.005575}

= 628 * 71.02138

= 44601.43

$44,601.43 will be accumulated by the end of year five.