Question

Jackie wants to take a trip around the world. She plans to deposit $150 at the beginning of each month into an investment with a 4.75% interest rate, compounded monthly. How much will she have in the account after 5 years?

Answer 1

The correct answer is that Jackie will have US$ 10,136.11 in her account after depositing US$ 150 monthly during five years

Explanation:

1. Let's review the information given to us for solving the question:

Monthly saving = US$ 150

Annual Interest rate = 4.75%

Monthly interest rate = 0.0475/12 = 0.003958 = 0.39%

Duration of the investment = 5 years = 60 months

2. For calculating how much Jackie will have in her account after 5 years we use the Future value formula, this way:

FV = Monthly saving * [(1 + Monthly Interest rate) ^number of periods - 1/ Monthly interest rate]

Replacing with the real values, we have:

FV = 150 * [(1 + 0.003958) ^60 - 1/ 0.003958]

FV = 150 * [(1.268074 - 1/ 0.003958]

FV = 150 * (0.26748064/ 0.003958)

FV = 150 * 67.5740564

FV = 10,136.11

Jackie will have US$ 10,136.11 in her account after depositing US$ 150 monthly during five years