Question

Suppose you invest $130 a month for 5 years into an account earning 8% compounded monthly. After 5 years, you leave the money, without making additional deposits, in the account for another 25 years. How much will you have in the end?

Answer 1

FV= $70,887.15

Explanation:

First, we need to calculate the future value of the $130 deposit for 5 years:

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit= $130

i= 0.08/12= 0.0067

n= 5*12= 60 months

FV= {130*[(1.0067^60) - 1]} / 0.0067

FV= $9,561.96

Now, using the following formula, the future value of the investment after 25 years:

FV= PV*(1 + i)^n

n= 25*12= 300

FV= 9,561.96*(1.0067^300)

FV= $70,887.15