Question

A payment of $110 was made at the end of each month for 4 years into a savings account. The interest rate on the account is 5.4% compounded monthly. What’s the interested earned on the account?

Answer 1

Putting into a financial calculator;

PMT = -110

N = (12*4)=48

I/Y = (5.4/12) = 0.45%

 

Solving for FV; we get FV = 5,878.92

Hence future value of payments = $5,878.92 (Approx)

Total deposits made = (110*48) = $5280

 

Hence interest earned = Future value of payments-Total deposits made

                                         = 5,878.92-5280

                                         = $598.92 (Approx)

interest earned = $598.92 (Approx)