Question

Suppose a recent college graduate's first job allows her to deposit $100 at the end of each month in a savings plan that earns 6%, compounded monthly. This savings plan continues for 5 years before new obligations make it impossible to continue.

a. How much money has accrued in the account at the end of the 5 years? (Round your answer to the nearest cent.)

b. If the accrued amount remains in the plan for the next 15 years without deposits or withdrawals, how much money will be in the account 20 years after the plan began? (Round your answer to the nearest cent.)

Answer 1

Answer a)

Future Value =

where r is the rate of Return for compounding period = 6% /12 = 0.5%  

n is the no of compounding period i.e. 5 years * 12 = 60 months

=

= 100 * 69.77003051

= $ 6977.003051

Answer b)

Deposited the above amount for another 15 years

n is 15 years * 12 = 180 months

Future Value = Value after 5 years (1+r)^180

= 6977.003051 (1+ 0.005)^180

= 6977.003051 * 2.45409356225

= $ 17122.22

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