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12 June, 09:03

At the end of each month for 20 years, you deposit $150 into a savings plan. You then make no further deposits, but leave the money in the plan for another 10 years. If the plan earn 5.5% compounded monthly, what will the balance be at the end of the 30-year period?

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  1. 12 June, 12:19
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    The balance resulting from 20 years' payments into the plan is the sum of a geometric series with first term $150 and common ratio 1+.055/12 (the monthly balance increase). That balance is

    ... $550 * ((1 +.055/12) ^240 - 1) / (.055/12) ≈ $239,595.07

    This balance is increased by the factor (1 +.055/12) each month for 120 months, so it is multiplied by (1 +.055/12) ^120 over the 10 years.

    ... $239,595.07 * (1 +.055/12) ^120 = $414,757.38

    At the end of the 30-year period, the balance will be $414,757.38.
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