A retirement account has $10,000 in it and earns 10% interest per year compounded monthly. At the end of every month for the next 5 years you will deposit $200 into this account. How much will be in the account at the end of 5 years?

Bri:

This can be solved using the Excel function for future value (=FV(rate,nper,pmt,[pv],[type])), where:

rate (interest rate per period) = 10%/year / 12 months/year = 0.833%, or 0.00833,

nper (number of periods) = 5 years / 12 months/year = 60,

pmt (payment per period) = -$200 (entered as a negative because it represents a cash outflow),

pv (present value) = $10,000 (entered as a negative because it represents a cash outflow), and

type (1 = annuity due (payment at the beginning of the period) or 0/null = ordinary annuity (payment at the end of the period) = 0; therefore,

fv (future value) = $31,935.60.

I hope that helps. Please contact me with any questions.

Regards,

Brian