Question

monthly payments of $75 are paid into an annuity beginning on January 31, with a yearly interest rate of 3%, compounded monthly. Add the future values of each payment to calculate the total value of the annuity on september 1.

Answer 1

The annuity on September 1 will be $621.43 if the monthly payments of $75 are paid into an annuity beginning on January 31, with a yearly interest rate of 3%

What is compound interest?

It is defined as the interest on the principal value or deposit and the interest which is gained on the principal value in the previous year.

We can calculate the compound interest using the below formula:

$\rm A = P(1+\dfrac{r}{n})^{nt}$

Where A = Final amount

          P = Principal amount

          r  = annual rate of interest

          n = how many times interest is compounded per year

          t = How long the money is deposited or borrowed (in years)

We have:

Monthly payments of $75 are paid into an annuity beginning on January 31, with a yearly interest rate of 3%.

Value of annuity as of September 1 calculation:

From the table:

For Jan:

Jan 0 $75.00 1.07214 $80.41

For Feb

Feb 1 $75.00 1.06152 $79.61

And on September 1, the value of the annuity will be:    =

= $621.43

Thus, the annuity on September 1 will be $621.43 if the monthly payments of $75 are paid into an annuity beginning on January 31, with a yearly interest rate of 3%

Learn more about the compound interest here:

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