Maths question (Finance)

2010-10-11 6:25 pm

Mary wants to deposit $3000 at the end of every month for an investment fund that pays interest of 8% compounded monthly in the coming 20 years. What will be the lump sum twenty years later?

p.s. 1. When seeing "compound interest" in this question, do I need to let 8% divide by 12 as a monthly interest firstly?

p.s. 2. Please kindly calculate step by step. Tks!

回答 (1)

Wai I

2010-10-11 8:00 pm

✔ 最佳答案

1. Yes

2. Formula of future value of an$1 annuity =((1+i)^n-1)/i

FV 20 years later
for i = 0.08/12
n=12*20=240

Lump sum after 20 years=3000 *[(1+0.08/12)^240]/(0.08/12) =1,767,061.24686

2010-10-12 10:19:01 補充：
using the deminator 12 is not because of the term 'compound interest', it is because of the word "monthly", if it says quarterly, then divided by 4, semi-annually, then divided by 2.

2010-10-18 15:39:09 補充：
Yeah, sorry, typing error. it should be 3000 *[(1+0.08/12)^240-1]/(0.08/12)

the answer is correct, but just typing error

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