Question

You have decided to place $644 in equal deposits every month at the beginning of the month into a savings account earning 5.88 percent per year, compounded monthly for the next 6 years. The first deposit is made today. How much money will be in the account at the end of that time period?

Round the answer to two decimal places.

Answer 1

Answer : Calculation of Future Value of Annuity :

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

where periodic payment = 644

r is monthly rate of interest i.e 5.88%/ 12 = 0.49% or 0.0049

n is the number of payments i.e 6 * 12 = 72

Future Value of Annuity = 644 * {[(1 + 0.0049)72 - 1 ] / 0.0049 } * (1 + 0.0049)

= 644 * {[1.421821 - 1 ] / 0.0049 } * 1.0049

= 644 * {0.421821 / 0.0049 } * 1.0049

= 644 * 86.08592 * 1.0049

= 55,710.99