Question

You make deposits at the end of each month into an account earning interest at a rate of 6%/year compounded monthly. Your deposits will be $2000/month in the first year, $2200/month in the second year, $2420/month in the third year, $2662 in the fourth year, and so on. How much will be in your account at the end of 40 years? No Excel answers please.

Answer 1

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A. Using Financial Calculator:

N = 12

I/Y = 6/12 = 0.5

PMT = -2000

CPT Press FV = 24,671.12

(Value of 1st payment at the end of 1st year)

Value at the end of 40th year =

Formula:

Future value= present value(1+r)^n

r= effective interest rate for the period. (((1.005)^12)-1)*100% = 6.168%

n = number of periods.

Value at the end of 40th year =

24,671.12*(1.06168)^39 = 254,627.82 (a)

B. Using a Financial Calculator:

N = 12

I/Y = 6/12 = 0.5

PMT = -2200

CPT Press FV = 27,138.23

(Value of 2nd payment at the end of 2nd year)

Value at the end of 40th year =

Formula:

Future value= present value(1+r)^n

r= effective interest rate for the period. (((1.005)^12)-1)*100% = 6.168%

n = number of periods.

Value at the end of 40th year =

27,138.23*(1.06168)^39 = 263,818.83 (b)

C. Using a Financial Calculator:

N = 12

I/Y = 6/12 = 0.5

PMT = -2420

CPT Press FV = 29,852.06

(Value of 3rd payment at the end of 3rd year)

Value at the end of 40th year =

Formula:

Future value= present value(1+r)^n

r= effective interest rate for the period. (((1.005)^12)-1)*100% = 6.168%

n = number of periods.

Value at the end of 40th year =

29,852.06*(1.06168)^39 = 273,341.60 (c)

D. Using a Financial Calculator:

N = 12

I/Y = 6/12 = 0.5

PMT = -2662

CPT Press FV = 32,837.27

(Value of 4th-year payment at the end of 4th year)

Value at the end of 40th year =

Formula:

Future value= present value(1+r)^n

r= effective interest rate for the period. (((1.005)^12)-1)*100% = 6.168%

n = number of periods.

Value at the end of 40th year =

32,837.27*(1.06168)^39 = 283,208.11 (d)

Answer: a+b+c+d= 1,074,996.37