Question

You have decided to place $416 in equal deposits every month at the beginning of the month into a savings account earning 3.04 percent per year, compounded monthly for the next 11 years. The first deposit is made today. How much money will be in the account at the end of that time period? Round the answer to two decimal places.

Answer 1

Solution

Equal Monthly deposits (P) = $416
Annual Interest = 3.04%
Term (Years) = 11
Number of Compounding = 12

Therefore, Total Number of payments = 12 x 11 = 132

Now, as given, the deposits will be made at the beginning of each month.

Therefore, using excel formula as follows, we will calculate how much amount will be in the account,

=FV(Rate,Nper,Pmt,Type)

Where, Rate = 3.04% / 132
Nper (Number of payments) = 132
Pmt (Monthly deposits) = -416
and, Type (If deposited at the beginning of the period, the value shall be set as "1", otherwise "0") = 1 (Deposits made at the beginning of the month)

Using the equation as follows,
=FV(3.04%/132,132,-416,1)
= 55761.51 (Approx.)

Answer: After the given time period, $55761.51 shall be in the account.