Question 1163402: You deposit $400 each month into an account earning 7% interest compounded monthly.
How much will you have in the account in 20 years?
How much total money will you put into the account?
How much total interest will you earn?
Answer by ikleyn(52794)   (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 = 400; r = 0.07/12; n = 12*20 = 240. So, according to the formula (1), you get
at the end of the 20-th year
FV =  =  = $208,370.70.
Note that you deposit only 12*20*$400 = $96,000.
The rest $208370.70 - $96000 = $1212370.70 is the interest what the account earns/accumulates in 20 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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