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.

​$561 per month invested at ​5%, compounded​ monthly, for 3 ​years; then ​$781 per month invested at ​6%, compounded​ monthly, for 3years.

What is the amount in the account after 6 ​years?

Answer 1

Sol:

Monthy contribution (PMT)= $561 for 3 years, Monthly = 3 * 12 = 36

Thereafter $781 for another 3 years, Monthly = 3 * 12 = 36

Interest rate for first 3 years = 5%, Compounded monthly = 5 / 12 = 0.4167%

Interest rate for next 3 years = 6%, Compounded monthly = 6 / 12 = 0.50%

Total period (NPER) = 6 years

To find the final amount in the retirement account after 6 years, we have to use FV function in excel for the first 3 years and then for the next 3 years:

PMT	-561
NPER	36
Rate	0.4167%
Future value	$21,740.62
Present value	$21,740.62
PMT	781
NPER	36
Rate	0.5000%
Future value	$56,738.08

Therefore final amount in the account after 6 years will be $56,738.08

Working