Question

6. If a person starts investing $100 per month starting at age 21, and that money earns a 5% return every year, how much will this person have when turning 70 years old? For ease of calculation, assume starting balance of $0 and annual contributions of $1,200 (12*$100).

Answer 1

We can use the formula of the future value of an annuity ordinary which is;

Fv=pmt [((1+r)^(n)-1)÷r]

Fv = future value = ?

PMT = yearly payment = 1200

R = interest rate = 5% = 0.05

N = time = (70-21) = 49 years
Fv=1,200×(((1+0.05)^(49)−1)÷(0.05))

Fv=238111.995103