Question

If interest rates stay at 5% APR and I continue to make my monthly $25 deposits into my retirement plan, I should have at least $40,000 saved when I retire in 20 years. I will have $_____  enter your response here in my retirement account when I retire in 20 years.(Round to the nearest cent as needed.)

Answer 1

We would apply the formula for calculating the future value of an annity which is expressed as

S = R[(1 + i)^n - 1)/i]

where

R is the payment at the end of each period

i is the interest rate per period

n is the number of periods

S is the future value

From the information given,

R = 25

Since the interest rate is 5%(5/100 = 0.05 and the deposit is made monthly, then

i = 0.05/12

n = 20 x 12 = 240

Thus,

S = 25[(1 + 0.05/12)^240 - 1)/0.05/12]

S =