You need to save over $500,000 over the next 9 years, how much should be deposited monthly if the investments earns 5% interest compounded at the end of each month?
Monthly compounding of interest involves the addition of calculated interest to the account balance at the end of each month. This results in a faster growth of the account balance than annual interest compounding.
Answer and Explanation: 1
- FV = future value desired = $500,000
- PMT = monthly payment
- r = monthly interest rate = 5% / 12 = 0.4167%
- n = number of months = 9 * 12 = 108
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fromChapter 21 / Lesson 15
An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.