Question

A newspaper editor starts a retirement savings plan in which $225 per month is deposited at the beginning of each month into an account that earns an annual interest rate of 6.6% compounded monthly. Find the value (in dollars) of this investment after 20 years. (Enter a number. Round your answer to the nearest cent.)

Answer 1

Answer: the value of this investment after 20 years is $112295.2

Step-by-step explanation:

We would apply the formula for determining future value involving deposits at constant intervals. It is expressed as

S = R[{(1 + r)^n - 1)}/r][1 + r]

Where

S represents the future value of the investment.

R represents the regular payments made(could be weekly, monthly)

r = represents interest rate/number of interval payments.

n represents the total number of payments made.

From the information given,

Since there are 12 months in a year, then

r = 0.066/12 = 0.0055

n = 12 × 20 = 240

R = $225

Therefore,

S = 225[{(1 + 0.0055)^240 - 1)}/0.0055][1 + 0.0055]

S = 225[{(1.0055)^240 - 1)}/0.0055][1.0055]

S = 225[{(3.73 - 1)}/0.0055][1.0055]

S = 225[{(2.73)}/0.0055][1.0055]

S = 225[496.36][1.0055]

S = $112295.2