Question

You have $4,000, which is invested in a savings account earning 6.50 percent nominal interest, compounded monthly. Your current budget allows you to invest $250 per month which you will add to your account at the end of every month. How much will you have after five years?

Answer 1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+6.5/12*100)^12-1)*100

Effective Annual Rate% = 6.7

FV of amount already invested

Future value = present value*(1+ rate)^time

Future value = 4000*(1+0.067)^5

Future value = 5532

FV of monthly payments

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 250*(((1+ 6.7/1200)^(5*12)-1)/(6.7/1200))

FV = 17759.93

total amount in 5 years = FV of amount already invested + FV of monthly payments = 5532+17759.93=23291.93