Question

How much should be deposited at the end of each month in an account paying 7.5% interest for it to amount to $10,000 in 5 years?

a) $140.85
b) $150.20
c) $160.75
d) $170.50

Answer 1

To accumulate $10,000 in 5 years at an interest rate of 7.5%, a monthly deposit of $140.85 is required.

Step-by-step explanation:

To calculate the monthly deposit needed to accumulate $10,000 in 5 years at an interest rate of 7.5%, we can use the formula for future value of an ordinary annuity:

FV = P * [(1 + r)^n - 1] / r

Where FV is the future value, P is the monthly deposit, r is the interest rate per period, and n is the number of periods. Rearranging the formula to solve for P:

P = FV * (r / [(1 + r)^n - 1])

Plugging in the given values:

P = $10,000 * (0.075 / [(1 + 0.075)^5 - 1])

P ≈ $140.85

Therefore, the monthly deposit needed is approximately $140.85.