In order to accumulate enough money for a down payment on a house, a couple deposits $321 per month into an account paying 6% compounded monthly. If payments are made at the end of each period, how much money will be in the account in 3 years? What is the amount in the account after 3 years? $ (Round to the nearest cent as needed.)
In order to accumulate enough money for a down payment on a house, a couple deposits $321 per month into an account paying 6% compounded monthly. If payments are made at the end of each period, how much money will be in the account in 3 years? What is the amount in the account after 3 years? $ (Round to the nearest cent as needed.)
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 14PROB
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Transcribed Image Text:In order to accumulate enough money for a down payment on a house, a couple deposits $321 per month into an
account paying 6% compounded monthly. If payments are made at the end of each period, how much money will be
in the account in 3 years?
What is the amount in the account after 3 years?
$
(Round to the nearest cent as needed.)
Expert Solution
Concept:
The future value of an ordinary annuity is the value of a series of equal payments made at regular intervals at some point in the future. It represents the value of the payments in the future, taking into account the effect of compounding interest. The formula for calculating the future value of an ordinary annuity is:
FV = PMT * [(1 + r)^n - 1] / r
Where:
- FV = future value
- PMT = payment amount
- r = interest rate
- n = number of payments or periods
In other words, the future value of an ordinary annuity represents the amount that a series of equal payments will grow to after a certain number of periods, given a specified interest rate. This formula can be used to calculate the future value of a savings plan, investment, or retirement plan, among other applications.
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