Question

Find the final amount in the following retirement​ account, in which the rate of return on the account and the regular contribution change over time.

​$447 per month invested at 4​%, compounded​ monthly, for 5 ​years; then ​$770 per month invested at 7​%, compounded​ monthly, for 5 years.

What is the amount in the account after 10 ​years?

Answer 1

Sol:

Monthy contribution (PMT)= $447 for 5 years, Monthly = 5 * 12 = 60

Thereafter $770 for another 5 years, Monthly = 5 * 12 = 60

Interest rate for first 5 years = 4%, Compounded monthly = 4 / 12 = 0.3333%

Interest rate for next 5 years = 7%, Compounded monthly = 7 / 12 = 0.583%

Total period (NPER) = 10 years

To find the final amount in the retirement​ account, we have to use FV function in excel for the first 5 years and then for the next 5 years:

PMT	-447
NPER	60
Rate	0.3333%
Future value	$29,635.64
Present value	$29,635.64
PMT	770
NPER	60
Rate	0.5833%
Future value	$97,138.77

Therefore final amount in the​ account after 10 years will be $97,138.77

Working