SOLUTION: hardie has decided to invest 1000 dollars at the end of each month for 5 years. If his rate of return is 6% compounded monthly, what will be the value of his investment 5 years lat

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Question 1166209: hardie has decided to invest 1000 dollars at the end of each month for 5 years. If his rate of return is 6% compounded monthly, what will be the value of his investment 5 years later.
Answer by ikleyn(52855)   (Show Source): You can put this solution on YOUR website!
.
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 the monthly payment (deposit); r is the monthly percentage yield presented as a decimal; 
n is the number of deposits (= the number of years multiplied by 12, in this case).


Under the given conditions, P = 1000;  r = 0.06/12;  n = 12*5 = 60.  So, according to the formula (1), 
you get at the end of the 5-th year


    FV =  =  = $69770.03.


Note that you deposit only  12*5*$1000 = $60,000.  The rest is what the account earns/accumulates in 5 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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