Question

Lauren plans to deposit $5000 into a bank account at the beginning of next month and $200/month into the same account at the end of that month and at the end of each subsequent month for the next 5 years. If her bank pays interest at the rate of 3%/year compounded monthly, how much will Lauren have in her account at the end of 5 years? (Assume that no withdrawals are made during the 5-year period)

Answer 1

Lauren Deposited $ 5000 at the beginning of next month.

Calculating the future value of amount deposited at the end of 5 years.

where, invested amount = $ 5000

r = periodic interest rate = 0.03/12 = 0.0025

n = no of periods = (5 yrs *12 months) - 1 month = 59 {As amount is depsoited at the beginning of next month and future value is calculated of amount at the end of 5 years}

Future VAlue = $ 5793.60

- After that lauren deposited $ 200 each month at the end of next month.

Calculating the future value of periodic deposited amount at the end of 5 years.

Where, C= Periodic Payments = $200

r = Periodic Interest rate = 0.03/12 = 0.0025

n= no of periods = (5 yrs *12 months) - 1 month = 59 {As amount is depsoited at the beginning of next month and future value is calculated of amount at the end of 5 years}

Future Value = $ 12,697.60

So, total future value after 5 years = $ 12,697.60 + $ 5793.60

= $ 18,491.20

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