You deposit $300 each month into an account earning 7% interest compounded monthly. Two question help!

Question

You deposit $300 each month into an account earning 7% interest compounded monthly.

a) How much will you have in the account in 20 years?

$156,278


b) How much total money will you put into the account?




c) How much total interest will you earn?

Answer 1

Hello Jessica,

 

Well done on part a). I did get a slightly different answer from yours, though. Check your formula against this one:

 

     S = ar(1 - rⁿ) / (1 - r)

 

Based on the difference between our answers, I think you left out that r multiplying into a in the numerator. My answer was:

 

     S = $157,189.62

 

Moving on to part b): How much total money will you put into the account? The total amount of money we're putting in = (The amount we're putting in each month, which is $300) × (The number of months in 20 years).

 

     Total amount we've put in = ($300) × (20 • 12)

 

For part c): How much interest will you earn? After 20 years:

 

     Account balance = The total amount we've put in + The interest the account has earned

 

We know the account balance after 20 years from part a), and we figured out the total amount we've put in during part b). From here, we can just subtract one from the other to get the interest accrued.

 

Hope this helped!