+47 In order to accumulate enough money for a down payment on a house, a couple deposits $442
per month into an account paying 3% compounded monthly. If payments are made at the end of each period, how much money will be in the account in 5 years?
At the moment we have to adjust the time frame of years to months. 5 years = 60 months
With our effective interest rate we're good to go to the formula.
Let's set up our formula!
FV = A(((1+i)^n)-1)/(i)
FV = 442((((1.03)^60)-1)/(.03)
FV = $72069.62
Guest #1
Remember you have monthly payments of $442 @ 3% compounded monthly:
FV = P x [1 + R]^N - 1 / R
FV = 442 x {[ 1 + 0.03/12]^(5*12) - 1 / (0.03/12)}
FV = 442 x {[1.0025]^60 - 1 / (0.0025)}
FV = 442 x 64.6467126......
FV = $28,573.85.
The payment of $442 is a MONTHLY payment. The interest rate is 3% compounded MONTHLY. Therefore, the interest rate =0.03/12 =0.0025 PER MONTH. The way you have written your equation, your interest rate is 3% PER MONTH!!, or 3% x 12 =36% Annual rate compounded MONTHLY!!. Can't you see it??.
You would be correct if the interest rate was compounded annually. Since all the periods are the same once you adjust time from years to months the interest rate is effective. The Captchas are getting stronger with stealth. They have disguised a kite as a blimp. I may not last much longer.
