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You are going to save money for your son’s education. You have decided to place $579...

You are going to save money for your son’s education. You have decided to place $579 every half year at the end of the period into a saving account earning 3.07 percent per year, compounded semi-annually for the next 5 years. How much money will be in the account at the end of that time period?

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Answer #1

We need to use the time value of money concept - specifically the value of annuities in order to solve this question. Now, the question mentions about annuity payment made at the end of the period and hence this is an ordinary annuity. For an ordinary annuity, future value is calculable using the mathematical representation below:

For our question, P = $579, r = 3.07% (annual) --> 1.535% (semi-annual), n = 5 years --> 10 semi-annual periods

FV = $6,206.76

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