Question

In: Accounting

What is the formula to calculate how much a savings account would be worth if the...

  1. What is the formula to calculate how much a savings account would be worth if the initial balance is $1,000 with monthly deposits of $75 for 10 years at 4.3% annual interest compounded monthly? What is the formula result?
  2. You want a savings account to grow from $1,000 to $5,000 within two years. Assume the bank provides a 3.2% annual interest rate compounded monthly. What is the formula to calculate how much you must deposit each month to meet your savings goal? What is the formula result?
  3. A business takes out a loan for $250,000 at 4.8% interest compounded monthly. If the business can afford to make monthly payments of only $1,500 on the loan, what is the formula to calculate the number of months required to repay the loan completely? What is the formula result?
  4. Redo your calculations from question #3 to assume that the business can afford only a $1,000 payment. What is the revised formula and resulting value?
  5. A business takes out a 10-year loan for $250,000 at 5.3% interest compounded monthly. What is the formula to calculate the monthly payment and what is the resulting value?

Solutions

Expert Solution

First convert the interest rate into per month effective rate.

Answers.

1.$8304.46

2.$158.94

3.276 months

4. 3461 months

5.$2688.45


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