Question

Find the savings plan balance after 18 months with an APR of 6% and monthly payments of $800. Assume an ordinary annuity.

Answer 1

$800 [((1.005)18 - 1)/.005]

$800 x [(1.0939 - 1)/.005]

$800 x (0.0939/0.005)

$800 x 18.785

~ $15,028

The savings plan is 15,028.

Answer 2

The formula for this calculation is Future Value = Payment • [((1 + I)n - 1)/I], where I = interest rate, and n = periods.

In this case, P = $800/month, n = 18 months, and I = 6% (0.06) per year.

Since the information involves months instead of years, it is necessary to divide the interest rate by 12 to obtain the monthly rate. So, 0.06 ÷ 12 = 0.005

We can then enter the information into our formula to obtain:

FV = $800 • [((1.005)18 - 1)/.005]

FV = $800 • [(1.0939 - 1)/.005]

FV =$800 • (0.0939/0.005)

FV = $800 • 18.785

FV ≅ $15,028