Question

Suppose you put off making investments for the first 5 years, and instead made deposits of $50 a month for 25 years into an account earning 8% compounded monthly. How much will you have in the end?

Please use Loan Formula

Answer 1

Future value of annuity = P * [(1 + r)ⁿ - 1] / r,

where P = periodic payment. This is $50

r = periodic rate of interest. This is (8%/12). We divide by 12 since we need to convert the annual rate into monthly rate)

n = number of periods. This is 25 * 12 = 300 (there are 25 years, or 300 months in the years from 2019 to 2043)

Future value of annuity = 50 * [(1 + (8%/12))³⁰⁰ - 1] / (8%/12)

Future value of annuity = $47,551.32

Value of account at end of investment period = $47,551.32