Problema Solution
A young couple saves for a down payment on a house by depositing $100 each month into an annuity that pays a 4.8% annual rate. Find the amount in the annuity at the end of 2 years.
Answer provided by our tutors
Assume that we are making n regular payments, R, into an ordinary annuity. The interest is being compounded m times a year and deposits are made at the end of each compounding period. The future value (or amount), A, of this annuity at the end of the n periods is given by the equation:
A = R((1 + r/m)^n - 1)/(r/m)
n = 2*12 = 24 payments
R = $100
m = 1 we assume the interest is being compounded annually
r = 0.048 or 4.8% annual rate
A = 100((1 + 0.048/1)^24 - 1)/(0.048/1)
A = $4,335.12
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