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If Betty makes monthly deposits at the end of each month in an account that earns 8% interest compounded monthly,
(a) How much would she have to deposit every month in order to have $40,000 in the account in 9 years? $
(b) Find her total balance in the account at the end of three months. $
(c) Find the total amount of interest that she's earned after the 9 years. $

Sagot :

sqdancefan

9514 1404 393

Answer:

  (a) $254.08

  (b) $767.34

  (c) $12,449.36

Step-by-step explanation:

These questions are best answered by a financial calculator or app. Such are available for your phone or tablet. A spreadsheet also has built-in functions for making these calculations.

(a) FV = $40,000, i = 8% per year, n = 9 years (108 months), compounding 12 times per year. The monthly deposit needs to be $254.08.

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(b) Payment = $254.08, n = 3 months, i = 8%/year, compounding 12 times per year. FV = $767.34.

__

(c) The sum of 108 payments of $254.08 is ...

  108 × $254.08 = $27,440.64

The interest earned is enough to bring the account value to $40,000, so is ...

  $40,000 -27,440.64 = $12,559.36

_____

Additional comment

The amount $254.08 is rounded down to the nearest cent, so the balance after 9 years will be $39,999.70, which is $0.30 short of $40,000. We used $40,000 as the final account balance, so overestimated the interest by $0.30.

There may be additional small changes in the values if you round interest to the nearest cent each month the way a financial institution would. It is hard to tell in these problems how accurate you're intended to be in your calculations.

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