Suppose you invest $140 a month for 3 years into an account earning 8% compounded monthly. After 3 years, you leave the money, without making additional deposits, in the account for another 28 years. How much will you have in the end?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose you invest $140 a month for 3 years into an account earning 8% compounded monthly. After 3 years, you leave the money, without making additional deposits, in the account for another 28 years. How much will you have in the end?

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Step 1 Analysis

Future value of ordinary annuity(cash flow due at the end of year) can be calculated by using this formula

 FVn =CF*[(1+r/m)n*m-1]/(r/m)

Where CF =Annual cash  flow

              r =rate of interest

             n=number of years

            m= number of time par year

Future value of a lumsum amount/single cash flow can be calculated by using this formula

       FVn =PV*(1+r/m)n*m

      Where PV = lump sum amount/single cash flow

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