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You deposit $1000 each quarter into an account earning 8% compounded annually. How much will you have in the account in 20 years?

User Aliens
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1 Answer

5 votes

Answer: $183,047.86

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Work Shown:

You deposit $1000 each quarter into the account. There are 4 quarters per year, so you really deposit $4000 per year. At the end of the year, the interest is compounded and added into the account to help it grow (beyond what you put in).

Because of the periodic deposits done every year for 20 years, this means that we'll use an annuity formula. Specifically a future value annuity formula.

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The formula we'll use is

FV = P*( (1+i)^n - 1 )/i

where

FV = future value of account = unknown

P = periodic payment amount = 4000

i = interest rate per period = 8% = 0.08

n = number of periods = number of years = 20

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Plug all those values into the formula and compute. Round to the nearest penny.

FV = P*( (1+i)^n - 1 )/i

FV = 4000*( (1+0.08)^20 - 1 )/0.08

FV = 183,047.857192466

FV = 183,047.86

User Supreet Totagi
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