Question

tyrone opens an account at the local bank by depositing $50 of his birthday money. He continues to deposit $50 each month for 5 years. If the account pays 3 1/4% interest compounded monthly how much is the amount after 5 years?

Answer 1

Answer-

The amount will be $8944.62 after 5 years.

Solution-

We know that,

$\text{FV of annuity}=P[\dfrac{(1+r)^n-1}{r}]$

Where,

P = Payment = $50 monthly

r = rate of interest compounded monthly= $3\frac{1}{4}=3.25\%=0.0325$

n = number of period = 5 years = 5×12 = 60 months

Putting the values in the formula,

$\text{FV of annuity}=50[\dfrac{(1+0.0325)^{60}-1}{0.0325}]$

$=50[\dfrac{(1.0325)^{60}-1}{0.0325}]$

$=50[\dfrac{6.8140-1}{0.0325}]$

$=50[\dfrac{5.8140}{0.0325}]$

$=50\times 178.8923$

$=8944.62$

Therefore, the amount will be $8944.62 after 5 years.