Janelle makes monthly deposits of 90 dollars into an account that pays an effective rate of...
Janelle makes monthly deposits of 90 dollars into an account that pays an effective rate of interest of 6 percent. How much will she have in the account immediately after the 24th deposit? (Hint: What is the formula for an annuity?)
Homework Answers
Effective Annual Interest = 6 %
Let the monthly rate of interest be R
Therefore, (1+0.06) = (1+R)^(12)
R = (1.06)^(1/2) - 1 = .004868 or 0.4868 %
Further, let us assume that all deposits by Janelle are made at the end of each month.
Therefore, total value of deposit after the 24th one = 90 x (1.004868)^(23) + 90 x (1.004868)^(22) + ...........+ 90 x (1.004868) + 90 = [{(1.004868)^(24) - 1} / {1.004868 - 1}] x 90 = $ 2285.35
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