Question

I want to buy a car. I am saving $300 a month from my job and putting it in the bank. If the bank is offering 4% interest per year, compounded monthly, how much will I have saved at the end of 5 years?

Answer 1

Given.

Monthly savings = $300

Interest rate = 4% or 0.04

Number of years = 5 years

Solution :-

Monthly interest rate (r) = 0.04/12 = 0.00333333333

Number of months (n) = 5 years x 12 = 60

Now,

Future value

= Monthly savings/r x [(1 + r)ⁿ - 1]

= $300/0.00333333333 x [(1 + 0.00333333333)⁶⁰ - 1]

= $90000 x [(1.00333333333)⁶⁰ - 1]

= $90000 x [1.2209965936987 - 1]

= $90000 x 0.2209965936987

= $19889.69

You will have saved $19889.69 at the end of 5 years.