Question

1) You deposit $500 each month into an account earning 3% interest compounded monthly.
a) How much will you have in the account in 25 years?

b) How much total money will you put into the account?

c) How much total interest will you earn?

2) Suppose you invest $190 a month for 6 years into an account earning 7% compounded monthly. After 6 years, you leave the money, without making additional deposits, in the account for another 21 years. How much will you have in the end?

3) You deposit $5000 each year into an account earning 4% interest compounded annually. How much will you have in the account in 25 years?

Answer 1

1) If we deposit $500 each month earning interest of 3% compounded monthly for 25 years, it means we will get the interest at the rate of 3%/12 and we have 12*25 periods. Enter the following in the financial calculator

PMT = 500; n=25*12; 1/y = 3%/12, PV = 0; Calculate FV = $223,003.91

b) Total money that we put into the account is 500*12*25 = $150,000

c) Total interest earned = Total maturity amount - total money put into the account.

=$223,003.91 - $150,000 = $73,003.91