Question 212105
$1500 is deposited every year in an account yielding 6% interest compounded annually, how much money will have been saved after 10 years?  


Step 1.  Money after First year = 1500*1.06  (Money after first year is bigger than initial investment.  That's why 1.06 must be bigger than 1 where 6% is 0.06. Then add 1 to get 1.06)


Step 2.  Money after Second year = First Year*1.06= 1500*1.06*1.06


Step 3.  Money after Third year = Second Year*1.06= 1500*1.06*1.06*1.06


Step 4.  Base on Steps 1-3, there is a pattern.  So after n years then the general formula is 


{{{Pn=1500*1.06*10^n}}}


where n is the number of years and Pn is the amount of money after n years.  In this case n=10 and payment after ten year is labelled as P10


Step 5.  Solve equation in Step 4.

{{{P10=1500*(1.06^10)}}}

now {{{1.06^10=1.790847697}}}

So

{{{P10=1500*1.790847697}}}

{{{P10=2686.27}}}


Step 6.  So at the end of 10 years an initial investment of $1500 compounded annually at 6% is $2686.27.  You almost doubled your money.  You should double your money at the end of 12 years.  You can check by substituting n=12. 
 

Happy Investing!  Dr J


For Step-By-Step Videos in Introduction to Algebra, please visit http://www.FreedomUniversity.TV/courses/IntroAlgebra.



For more questions in investing calculations, please contact Dr J at john@e-liteworks.com.