Question

Use the savings plan formula to answer the following question. You put $200 per month in an investment plan that pays an APR of 4.5%. How much money will you have after 18 years? Compare this amount to the total deposits made over the time period.

Answer 1

Explanation:

The savings plan formula is:

A=PMT x [(1+APR/n)^(nY) - 1]/(APR/n)

PMT = 200 APR = .045 n=12 Y=18

A=200 x [(1+.045/12)^(12x18) - 1]/(.045/12)

A=200 x [(1.00375)^216 - 1)]/.00375

A=200 x 1.244505066/.00375

A=66373.80

Paymnets made over time: 200 x 12 x 18 = 43200

Balance after 18 years: 66373.80

Interest Earned over 18 years: 66373.80 - 43200 = 23173.80