In: Accounting
In June of 2015, you begin depositing $300 per month into an annuity.(a) If the interest rate is 1.4% compounded monthly, determine the value of the account in June 2016.(b) In June 2016, the interest rate increases to 2.2% compounded monthly, determine the value of theaccount in June 2017.
We are required to calculate the future value of an annuity for which formula is:
a) Therefore, P = $ 300, r= 1.4/100 = 0.014, n = 11 (assuming that the investment is done at the end of the month)
Applying values given in question, we get,
FV i.e. Future Value = 300 [ (1+0.014)11 - 1] / 0.014
= 300 * [1.1816 - 1]/0.014
= 300 * [0.1816/0.014]
= 300 * 12.9714
= $ 3891.42
Value of Account in June, 2016 = $ 3891.42
b) P = $ 300, r= 2.2/100 = 0.022, n = 11 (assuming that the investment is done at the end of the month)
Applying values given in question, we get,
FV i.e. Future Value = 300 [ (1+0.022)11 - 1] / 0.022
= 300 * [1.2984 - 1]/0.022
= 300 * [0.2984/0.022]
= 300 * 13.5636
= $ 4069.08
Value of Account in June, 2017 = $ 4069.08
The question is to answer value of Account in June, 2017, if it is assumed that, total value of account is asked in the question , we would add to it the value as in June, 2016, therefore,
resulting value in June, 2017 = $ 3891.42 + $ 4069.08
= $ 7960.5