You are to make monthly deposits of $500 into a retirement account that pays 10.3 percent
QUESTION
You are to make monthly deposits of $500 into a retirement account that pays 10.3 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 35 years?
Concept: Future Value of asset provides a value of an asset in the future at a specified time. Future value can be calculated as: Future Value of Annuity can be calculated by: Future Value of Annuity = Annual Cash Flow*[((1+r)^n)-1]/r Where r -> Annual Interest Rate n -> Number of Periods For Monthly Payment: Interest Rate = r/12
ime Period = n*12 Solution: Monthly Deposit = $500 Time Period = 35 Years = 420 Months Interest Rate = 10.3% = 10.3%/12 = 0.8533% (Monthly Compounding) Future Value of Annuity = $500*[((1+0.8533%)^420)-1]/0.8533% = $2063682.79
ANSWER:
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