Question

A young executive deposits $300 at the end of each month for 6 years into an account that earns 6% compounded monthly. How much is in the account after the 6 years? (Round your answer to the nearest cent).
$
The executive then changes the deposits in order to have a total of $400,000 after 25 total years. What should be the revised monthly payment in order to meet the $400,000 goal? (Round your answer to the nearest cent).
$
How much interest is earned during the 25 years?

Answer 1

a). Periodic deposit at the end of each month by Young executive for 6 years is $300

Calculating the Future Value in account after 6 years:-

Where, C= Periodic Payments = $300

r = Periodic Interest rate = 6%/12 = 0.5%

n= no of periods = 6 years*12 = 72

Future Value = $25,922.66

So, amount in the account after the 6 years is $25,922.66

b). Exceutive wanst to accumulate a Future Value of $400,000 after 25 years.

Calculating the revised monthly payment to meet goal:-

Where, C= Periodic Payments

r = Periodic Interest rate = 6%/12 = 0.5%

n= no of periods = 25 years*12 = 300

C = $577.21

So, the revised monthly payment in order to meet the $400,000 goal is $577.21

- Total Interest earned during 25 years = Future Value - Total monthly deposit made during the period

= $400,000 - ($577.21*300)

Total Interest earned during 25 years = $226,837

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