Question

You deposit $1000 per month every month into an investment account for 40 years. The deposits are made at the end of each month . The first deposit is made at the end of the first month. If the return 6 percent compounded monthly for the first 10 years, and 9 percent compounded monthly thereafter, how much will you have in the account in year 40?

Answer 1

Information provided:

Monthly deposit= $1,000

Time= 40 years*12= 480 months

Interest rate for the first 10 years= 6%/12= 0.50%

Interest rate after the first 10 years= 9%/12= 0.75%

First, the money in the account at the end of 10 years is calculated.

Enter the below in a financial calculator to compute the future value:

PMT= 1,000

N= 120

I/Y= 0.5

Press the CPT key and FV to compute the money in the account at the end of 10 years.

The value obtained is 163,879.35.

Therefore, the money in the account at the end of 10 years is $163,879.35.

Next, the money in the account after 10 years is calculated.

Enter the below in a financial calculator to compute the future value:

PMT= 1,000

N= 360

I/Y= 0.75

Press the CPT key and FV to compute the money in the account at the end of 40 years.

The value obtained is 1,830,743.48.

Therefore, the money in the account after the 10^th year is $1,830,743.48.

Thus, the money in the account in year 40 is $163,879.35 + $1,830,743.48= $1,994,622.83.

In case of any query, kindly comment on the solution.