Suppose you invest $140 a month for 3 years into an account earning 8% compounded monthly. After 3 years, you leave the money, without making additional deposits, in the account for another 28 years. How much will you have in the end?
Suppose you invest $140 a month for 3 years into an account earning 8% compounded monthly. After 3 years, you leave the money, without making additional deposits, in the account for another 28 years. How much will you have in the end?
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 16PROB
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Question
Suppose you invest $140 a month for 3 years into an account earning 8% compounded monthly. After 3 years, you leave the money, without making additional deposits, in the account for another 28 years. How much will you have in the end?
Expert Solution
Step 1 Analysis
Future value of ordinary annuity(cash flow due at the end of year) can be calculated by using this formula
FVn =CF*[(1+r/m)n*m-1]/(r/m)
Where CF =Annual cash flow
r =rate of interest
n=number of years
m= number of time par year
Future value of a lumsum amount/single cash flow can be calculated by using this formula
FVn =PV*(1+r/m)n*m
Where PV = lump sum amount/single cash flow
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