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# Future Value of an Ordinary Annuity Formula

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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?

Jul 2, 2017
edited by positivityqueen  Jul 2, 2017

#1
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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

Jul 3, 2017
edited by Guest  Jul 3, 2017
edited by Guest  Jul 3, 2017
edited by Guest  Jul 3, 2017
#2
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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.

Jul 3, 2017
#3
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Payment period = compounding period = time period

The interest rate is already effective. I still believe I am correct.

Guest Jul 3, 2017
#4
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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??.

Jul 3, 2017
#5
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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.

Guest Jul 3, 2017
#6
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Sorry young person. You still don't have a solid understanding of these kinds of financial problems. But, you will learn with practice! This question is VERY CLEAR. There is no room for ambiguity here.

Jul 3, 2017
#7
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Which Guest are you referring to?

Guest Jul 4, 2017