Question

Kym plans to deposit $100 in an account at the end of each month for the next five years so that she can take a trip. (a) If Kym's opportunity cost rate is 6 percent compounded monthly, how much will she have in the account in five years? (b) How much will be in the account if the deposits are made at the beginning of each month?

Answer 1

Answer:

Results are below.

Step-by-step explanation:

Giving the following information:

Monthly deposit= $100

Interest rate= 0.06/12= 0.005

Number of periods= 12*5= 60 months

a)

To calculate the future value, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit

FV= {100*[(1.005^60) - 1]} / 0.005

FV= $6,977

b) If the deposit is at the beginning of the month, the interest is compounded one more period. We need to use the following formula:

FV= {A*[(1+i)^n-1]}/i + {[A*(1+i)^n]-A}

FV= 6,977 + {[100*(1.005^60)] - 100}

FV= 6,977 + 35

FV= $7,012