Question

Carmen is planning to invest $200 in a retirement account at the beginning of each month for the next 20 years. The account is earning 3.15% interest, compounded annually. He used the following formula and variables to solve for the future value of the account after 20 years.

FVOA = Future Value of an Ordinary Annuity
C = 200
n = 1
t = 20
i = 0.0315

He found that the future value of this account will be $5456.83 Is Carmen’s solution correct? If not, explain what he did wrong and provide the correct solution.

Answer 1

I'm terrible at meth

Answer 2

Well I need legit help I'm terrible at it n my super smart friend is asleep so he can't help me ;-;

Answer 3

C must be 2400. Since it says each month, you should multiply the 200 by 12.

Answer 4

oooooo i didn't think of doin thaaat

Answer 5

everythin else is correct right? the n,t n I

Answer 6

Yes

Answer 7

So I can just plug em into this equation....er i don't know how to type the equation out on here >.<

Answer 8

oookie just writin it all out

Answer 9

So I'll get 2491.00?

Answer 10

@lowkey

Answer 11

Hold on

Answer 12

i think i did somethin wrong

Answer 13

Hold on sorry
Carmen's solution is incorrect. It was calculated based on yearly deposits, not monthly deposits. The first error was n=1, where n should equal 12 because the $200 deposits are made monthly. So 12(n) monthly payments*20 (t) years = 240. The second error is that the interest was not divided by 12, since that is when the payments were made. So 3.15% annual interest or .0315/12=.002625 So filling in the equation would be: 200*((1+.002625)^(12*20)-1)/(.002625)= $66,747.53

Answer 14

ooooooooo okie thanks!!

Answer 15

ofc!

Answer 16

^^