You deposit $5000 each year into an account earning 3% interest compounded annually. How much will you have in the account in 30 years?

Question

You deposit $5000 each year into an account earning 3% interest compounded annually. How much will you have in the account in 30 years?

Answer 1

This is a common time value of money question, specifically the future value of an annuity payment. Annuities are just payments that are fixed each time period. The question state you are going to be depositing a fixed amount ( $5,000) each year into an account. The compounding period is also annually.

Therefore, you will use this formula to solve for the future value:

FV = C [ (1+r)ⁿ -1]

r

FV = Future value

C= Cash payment

r = interest rate

n = number of periods

So when you plug in the variables:

FV = 5000 [ (1.03)³⁰-1/ .03]

FV = 237,877.08

Hope this helped!