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Question 1154807: Suppose you want to accumulate $50,000 for a college fund over the next 15 years. Determine whether the following investment plans will allow you to reach your goal. Assume that the compounding and payment periods are the same for all the accounts. Question 1: You deposit $75 per month into an account with an APR of 7%. Question 2. You deposit $200 per month in to an account with a APR of 5%.
Answer by ikleyn(52788)   (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 = 75; r = 0.07/12; n = 12*15 = 180. So, according to the formula (1),
you get at the end of the 15-th year
FV =  =  = $23,772.17.
So, with this plan you will not get your goal.
Solve the next Question 2 using the same formula and substituting new data.
Happy calculations (!)
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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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