AMORTIZED LOANS

Question

$500 are deposited into an account quarterly for five years at an interest rate of 7.7% compounded quarterly. How much is in the account at the end of the 5 years?  

 

PLEASE SHOW ALL STEPS AND ANSWER

Answer 1

This is the Future Value of an Ordinary Annuity problem.

 

FV_A = 500 [1 + (0.077/4)^{4 * 5 = 20} - 1] / [(0.077/4)]

 

FV_A = 500 [(1 + 0.01925)²⁰ - 1] / 0.01925

 

FV_A = 500 * [(1.01925)²⁰ - 1] / 0.01925

 

FV_A = 500 * [(1.46425) - 1] / 0.01925

 

FV_A = 500 * (0.46425) / 0.01925 

 

FV_A = $12,058.37

 

So, there is:  $12,058.37 in the account at the end of 5 years.