Question

Mark deposits $500 each month in a retirement plan paying 15% compounded monthly. How much will he have in the account after 22 years?
Answer = $

Answer 1

Mark deposits $500 each month, this is a sequence of payment at equal time of interval so we calculate future value of an annuity.

This account is an ordinary annuity.

The payment R is $500.

The rate r = 0.15

Interest is compounded monthly, there are 12 compounding periods per year, so n= 12

The time of the deposit t = 22 years

The amount in the account after five years is

FA = R* ((1 + (r/n))^nt – 1)/ (r/n)

FA = 500*((1+ (0.15/12))^12*22 – 1) / (0.15/12)

FA = 500*((1.0125)²⁶⁴-1)/ 0.0125

FA = $1022548

$1022548 will he have in the account after 22 years.