You open a savings account to save for a new house. Everymonth you put $100 into

Question

You open a savings account to save for a new house. Everymonth you put $100 into a savings account which pays 5% interestcompounded monthly. At the end of each year you receive a $500bonus which you place directly into your “housefund”. How much is in this account after 5 years? You open a savings account to save for a new house. Everymonth you put $100 into a savings account which pays 5% interestcompounded monthly. At the end of each year you receive a $500bonus which you place directly into your “housefund”. How much is in this account after 5 years?

Explanation / Answer

Here there are two separate annuities.

5*12

Future value of an annuity of $100 Periodic Payments 100 ( A ) Rate of Interest 5% Number of PaymentPeriods

5*12

60 Future Value Factor( 60,0.0042% ) $60.07 ( B ) Future value of anannuity of $100 $6,007.44 ( A ) * ( B ) Future value of an annuityof $500 Periodic Payments 500 ( C ) Number of PaymentPeriods 5 Rate of Interest 5% Future Value Factor( 5,5% ) $5.53 ( D ) Future value of anannuity of $500 $2,762.82 ( C ) * ( D ) Amount Availablefor buying the house $8,770.26

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