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Rhonda needs to have $2500 in three and a half years. What monthly investment will she have
if her bank offers a 4.8% interest rate, compounded monthly?
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This problem is about a monthly payment for Ordinary Annuity saving plan.
Tutor @Theo misread the condition and mistakenly used another formula, which is not relevant to given condition,
therefore, he obtained incorrect answer.
The correct formula for the Ordinary Annuity saving plan is
f = ,
f is the future value
p is the monthly payment
r is the interest rate per time period
n is the number of time periods.
In your problem:
time periods are months.
f = 2500
p = what you want to find
r = 4.8% / 100 / 12 = .004 per month
n = 3.5 * 12 = 42 months
formula becomes 2500 =
solve for p to get:
p = = 54.78
she would have to deposit $54.78 monthly in order to have $2500 in 3.5 years at 4.8% per year compounded monthly.
Interesting, that her total direct deposit will be only $54.78*42 = 2300.76.
The rest is what the account will earn due to compounded percentage.
Solved.
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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.