Question

A representative from the bank speaks with you about opening a savings product. You would be guaranteed at least a 3.5% return for the next 10 years when you agree to add $25.00 each month for the entire time. Given this information and that you meet the minimum monthly contribution requirement, what would be your total accumulated value at the end of the 10 years?

Answer 1

a 3.5 % return is .035/12 - .002917 / mo

10 years is 120 mos.

This is basically an annuity payment - after 10 years 1$, deposited monthly, would be worth (similar to house mortgage, etc.)

N = (1 - (1 + i)^-120) / i = 241.73

Total amount = 25 * 241.73 = 6043

Note 120 payments at $25 = 3000