Question

Find the savings plan balance after 2 years with an APR of 4% and monthly payments of $250. The balance is $ (Do not round until the final answer. Then round to the nearest cent as needed.) Enter your answer in the answer box O Type here to search

Answer 1

Answer:

$6,506.51

Step-by-step explanation:

Recall that increasing an amount C in x% is equivalent to multiply it by (1+x/100)

As we have 4% APR, the monthly interest would be (4/12)% = 0.04/12

Month 0 (first payment)

$250

Month 1

$250 + 250 \frac{0.04}{12}= 250(\frac{12.04}{12})$

Month 2

$250(1+\frac{12.04}{12}+(\frac{12.04}{12})^2)$

Month 3

$250(1+\frac{12.04}{12}+(\frac{12.04}{12})^2+(\frac{12.04}{12})^3)$

Month 24 (2 years)

$250(1+\frac{12.04}{12}+(\frac{12.04}{12})^2+(\frac{12.04}{12})^3+...+(\frac{12.04}{12})^{24})$

The sum  

$1+\frac{12.04}{12}+(\frac{12.04}{12})^2+(\frac{12.04}{12})^3+...+(\frac{12.04}{12})^{24}$

is the sum of the first 24 terms of a geometric sequence with common ratio $\frac{12.04}{12}$ which is

$\frac{1-(12.04/12)^{25}}{1-(12.04/12)}=26.02603071$

so, after 2 years the saving balance is

250*26.02603071 = 6,506.50767= $6,506.51 rounded to the nearest cent.