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Christian deposits P 300 at the end of each quarter in his savings account.
If the account earns 5.75% yearly, how much money will he has in 4 years?
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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 quarterly payment (deposit);
r is the quarterly percentage yield presented as a decimal;
n is the number of deposits (= the number of years multiplied by 4, in this case).
Under the given conditions, P = 300; r = 0.0575/4; n = 4*4 = 16.
So, according to the formula (1), Christian will get at the end of the 4-th year
FV = = P5353.89.
Note that Christian will deposit only 4*4*P300 = P4800 in 4 years.
The rest is what the account earns/accumulates in 4 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.