Question

suppose you invest $190 at the end of each month for 5 years into an account earning 7% annual interest compounded monthly. After 5 years, you leave the money, without making additional deposits, in the account for another 21 years. How much will you have in the end?

Answer 1

Answer :

Future value of ordinary annuity is

FV = P [ ( 1 + i )^n - 1 / i ] where, P is a regular payment

FV = 190 [ ( 1 + 0.07 / 12 )^12*5 - 1 / 0.07 / 12 ]

FV = $13,602.6423 after 5 years

Now, for another 21 years the formula is

A = P ( 1 + r / n )^n*t

Where, A = Future value

P = Initial amount

n = no. of times interest is compounded per unit

t = time period

A = $13,602.6423 ( 1 + 0.07 / 12 )^12*21

A = $58,908.91

Therefore, the amount he will have at the end is $58,908.91.