Question

If you deposit $1,500 in an account paying 8%, how much will you have in 3 years?

If you deposit $1,500 into an account paying 8% compounded monthly, how much will you have in 3 years?

If you deposit $1,500 in an account paying 8% today and deposit $1,500 every year into the account, how much will you have in 3 years?

Answer 1

Option 1 :-

Future value = Amount deposited * ( 1 + i)n

= 1,500 * (1.08)3 = $ 1,500 * 1.259712

Amount in your account after 3 years = $ 1,889.568

Option 2 :-

Future value with monthly compounding = Amount deposited * ( 1 + i / k)n * k

Here K = number of compoundings per year.

= $ 1,500 * ( 1 + 0.08/12)3 * 12

= $ 1,500 * 1.27023705162

Amount in your account after 3 year = $ 1,905.356

Option 3 :-

Here amount deposited every year and deposited beginning of the year. So, we use Future value of annuity due concept.

Future value of annuity due = Amount deposited * (1+i) * [ (1+i)n - 1] / i

= 1500 * (1.08) * [ (1.08)3 - 1 ] / 0.08

=1500 * 1.08 * 3.2464

Amount in your account after 3 years = $ 5,259.168