SOLUTION: You deposit $5000 at the beginning of each year into an account earning 7% interest compounded annually. How much will you have in the account in 25 years?

Question 1148895: You deposit $5000 at the beginning of each year into an account earning 7% interest compounded annually. How much will you have in the account in 25 years?
Answer by ikleyn(52778) (Show Source): You can put this solution on YOUR website!
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It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = ,    (1)


where  FV is the future value of the account;  P is your annual payment (deposit); r is the annual percentage rate presented as a decimal; 
n is the number of deposits (= the number of years, in this case).


Under the given conditions, P = 5000;  r = 0.07;  n = 25.  So, according to the formula (1), you get at the end of the 25-th year


    FV =  = $316,245.20.


Note that you deposit only  25*$5000 = $125,000.  The rest is what the account earns/accumulates in 25 years.

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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.

The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.

When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.

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