You deposit $5000 each year into an account earning 8% interest compounded annually. How much will you have in the account in 30 years?

Answer 1

Assuming that there are no changes in the annual amount you invest ($5,000) and the annual compounded interest rate (8%), and that you have not made any withdrawals from the account, at year 30 you will have $611,729.

Due to the annual compounding of interest, you will need to first calculate the value of the account at the end of the first year—i.e., Year 1:

Year 1: Principal + (Principal * Interest) = $5,000 + ($5,000 * .08) = $5,000 + $400 = $5,400 (aka: New Principal_n, where n is the year))

For each subsequent year, the form of the equation is:

((New Principal_n + $5,000) * 0.08) + (New Principal_n + $5,000)

Using Year 2 as an example:

(($10,400) * 0.08) + ($10,400) = $11,232