Hi Tracy!
I'd recommend approaching this question in three steps:
Step 1: Find the monthly interest rate
Let's call the monthly interest rate "r"
We know that the annual percentage rate (APR) is 4%
So the monthly interest rate is given by (1+r)12 = 1.04
This gives r = 0.0032737
This means we earn 0.327% interest each month
Step 2: Find the contribution from each month
Say we pay $250 at the beginning of the first month. Then we earn six months' interest at a 0.327% rate. So value of the first month's contribution is given by 250 x (1.00327)6
[Note: the question is a bit ambiguous as to whether we make the contribution at the beginning or end of the month].
Similarly, the value of the second month's contribution is given by 250 x (1.00327)5
We can follow a similar approach each month, until we reach the value of the last month's contribution given by 250 x (1.00327)1
Step 3: Sum up the contributions from each month
We get the total value of the savings plan by adding up the value of each months' contribution
Total value = 250 x (1+r)6 + 250 x (1+r)5 + 250 x (1+r)4 + 250 x (1+r)3 + 250 x (1+r)2 + 250 x (1+r)1
= $ 1,517.28
Shortcut: You can also use the compound interest formula if you know it
Let me know if you have any further questions, and hope this helps!
- Viv
