Question 1178883: To save for the replacement of a computer, a business deposits $250 at the end of each month into an account that earns 7% annual interest compounded monthly. Find the future value of the ordinary annuity in 4 years. (Round you answer to the nearest cent.)
Found 2 solutions by Solver92311, ikleyn:
Answer by Solver92311(821)   (Show Source):
Answer by ikleyn(52788)  (Show Source):
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To save for the replacement of a computer, a business deposits $250 at the end of each month into an account
that earns 7% annual interest compounded monthly. Find the future value of the ordinary annuity 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 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 = 250; r = 0.07/12; n = 12*4 = 48. So, according to the formula (1), you get at the end of the 20-th year
FV =  =  = $13,802.31.
Note that you deposit only 12*4*$250 = $12,000. The rest is the interest that 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.
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