Chapter 12, Problem 34AT

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# The Mesa Grande Bank is paying 9% interest compounded monthly.a. If you deposit $100 into a savings plan at the beginning of each month, how much will it he worth in 10 years?b. How much would the account be worth if the payments were made at the end of each month rather than at the beginning? (a) To determine To calculate: The future value of annuities due where monthly deposit at the beginning of the month is$100, frequency of payment is 1 month, time duration is 10 years, nominal rate of return is 9% and interest is compounded monthly.

Explanation

Given Information:

Monthly deposit is $100, frequency of payment is 1 month, time duration is 10 years, nominal rate of return is 9% and interest is compounded monthly. Formula used: The formula to compute the future value of annuity due is, FV=Pmt×(1+i)n1i×(1+i) Where, FV is the future value, Pmt is the Annuity payment, i is the interest rate per period, n is the number of periods. Calculation: Consider that monthly deposit is$100, frequency of payment is 1 month, time duration is 10 years, nominal rate of return is 9% and interest is compounded monthly.

The rate period is 0.75%(9%÷12 period per year).

The number of periods is 120(10 years×12 period per year).

Substitute 120 for number of periods, 0.0075 for interest rate per period, $100 for Pmt in the formula FV=Pmt×(1+i)n1i×(1+i) (b) To determine To calculate: The future value of ordinary annuities where monthly deposit at the end of each month is$100, frequency of payment is 1 month, time duration is 10 years, nominal rate of return is 9% and interest is compounded monthly.

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