Question 1122075
.
There are two types of saving accounts that work in accordance with this scheme:


        a)   Ordinary Annuity saving plan,   and


        b)   Annuity Due saving plan.


Under Ordinary Annuity saving plan you deposit  $400  at the end of each month;

under Annuity Due saving plan you deposit  $400  at the beginning of each month.


I will give you the solution for the Ordinary Annuity plan only.


<pre>
     (When such a problem comes without explicit naming of the plan, I am 100% sure that it means an Ordinary Annuity).
</pre>

The formula is


<pre>
    The future value in 20 years = {{{400*(((1+0.02/12)^(20*12)-1)/((0.02/12))))}}} = {{{400*(((1+0.02/12)^240-1)/((0.02/12))))}}} = $117918.73.


    Notice that you deposit only $400*12*20 = $96,000.

    The rest is compound percents that the account earns in 20 years.


a) How much will you have in the account in 20 years?

$  $117,918.73.


b) How much total money will you put into the account?   

$  $96,000.


c) How much total interest will you earn?

{{{((117918.73 - 96000)/96000)*100}}} = 22.83%.
</pre>

On both plans, you can learn and read from the lessons

&nbsp;&nbsp;&nbsp;&nbsp;- <A HREF=http://www.algebra.com/algebra/homework/Sequences-and-series/Ordinary-Annuity-saving-plans-and-geometric-progressions.lesson>Ordinary Annuity saving plans and geometric progressions</A>

&nbsp;&nbsp;&nbsp;&nbsp;- <A HREF=http://www.algebra.com/algebra/homework/Sequences-and-series/Annuity-due-saving-plans-and-geometric-progressions.lesson>Annuity Due saving plans and geometric progressions</A>

in this site.