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Monthly payments of $ 600 were not paid for 19 months. If interest was 19.8%
compounded monthly, how much was owed?
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In this problem, the debt is numerically equal to the future value of the ordinary annuity
with the monthly deposits of $600 and the interest of 19.8% per year compounded monthly.
To calculate the future value of an ordinary annuity, use the general formula
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 (19 in this case).
Under the given conditions, P = 600; r = 0.198/12; n = 19.
So, according to the formula (1), you get at the end of the 20-th year
FV = = $13262.17.
ANSWER. $13,262.17.
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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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To make such complicated calculations as they are in this problem,
you should have/use an appropriate calculator for such long formulas.
Ideal choice is MS Excel, if you have it in your computer.
Then you write a formula in a text editor, copy-paste it
into an Excel work-sheet cell and click "enter" - the result is ready
in the next second.
If you have no MS Excel in your computer, you may find similar
free of charge calculators in the Internet. One such calculator is
www.desmos.com/calculator
It allows you to do the same thing: you write a formula in a text editor,
copy-paste it into this calculator and click "enter" - the result is ready
in the next second.