Question

Heather decides to make monthly payments into her savings account in the amount of $75 paying 3.6% compounded monthly for 5 years. Use FV=P((1+i)n−1i)

to determine the amount Heather will have in her savings account after the 5 year period.
Responses

$29,922

$4,922

$4,500

$492

Answer 1

First Option, (A) $29,922.

Explanation:

To calculate the future value of Heather's savings account after 5 years, we can use the formula for compound interest:

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

where:

FV = future value

P = principal (the initial amount Heather deposits)

i = interest rate per period (monthly in this case)

n = number of periods (months in this case)

P = $75 (the amount of Heather's monthly payments)

i = 3.6% / 12 = 0.003 (the monthly interest rate, calculated by dividing the annual interest rate by 12)

n = 5 x 12 = 60 (the total number of months in 5 years)

Substituting these values into the formula, we get:

FV = $75((1+0.003)^60 - 1)/0.003

FV = $75(1.21879)/0.003

FV = $29,922.02 (rounded to the nearest cent)

Therefore, Heather will have approximately $29,922.02 in her savings account after the 5 year period. The answer is option A: $29,922.