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You deposit $3000 at the beginning of each year into an account earning 6% interest
compounded annually. How much will you have in the account in 20 years?
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It is a classic Annuity Due saving plan. The general formula is
FV = *, (1)
where FV is the future value of the account; P is the 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 = 3000; r = 0.06; n = 20. So, according to the formula (1), you get at the end of the 20-th year
FV = = $110,356.77.
Note that you deposit only 20*$3000 = $60,000. The rest is the interest which the account earns/accumulates in 20 years.
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On Ordinary Annuity saving plans and Annuity Due saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Annuity Due 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.