Question

You are considering an investment by depositing $25,000 to an account today and making monthly contributions of $300 into the account for 10 years. If you want to have $100,000 in the account after 10 years, what annual interest rate must you earn from the account?

If you go ahead with the investment and decide to increase the monthly contribution to $400 after 5 years (deposit $25,000 today, $300 monthly for the first 5 years), how much will you have in the account at the end of 10 years.

Answer 1

First:

Calculator
Inputs:
PV	(25,000.00)
PMT	(300.00)
FV	100,000.00
N	120
Output:
I/Y = Period rate	0.56%
APR= I/Y *12	6.72%

Annual rate is 6.72%

Second:

Particulars	Initial	First 5	Next 5	Total
Contribution	25,000	300	400
× FVF/ FVAF for five years	1.39803	71.07643	71.07643
Future value in five years	34,950.70	21,322.93	28,430.57
× FVF/ FVAF for another five years	1.39803	1.39803
Future value in 10 years	48,862.06	29,810.05	28,430.57	107,102.69

Amount in ten years is 107,102.69