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Posted by on Tuesday, October 11, 2011 at 10:01am.

1. Suppose Mary deposits $200 at the end of each month for 30 years into an account that pays 5% interest compounded monthly.


a. How much total money will she have in the account at the end?

b. How much total money did Mary actually deposit?

c. How much total interest did the account earn over that period?

d. Suppose instead of making monthly deposits, Mary decides to deposit a “lump sum” into the account. How much must she deposit? What is this value also called?

  • algebra - , Tuesday, October 11, 2011 at 10:28am

    This question and the question in your previous post suggest that you are studying compound interest.
    Both are very routine questions that you should be able to answer quite readily.

    Payment=200
    i = .05/12 = .004166667
    n = 30(12) = 360

    a)
    amount = 200(1.004166667^360 - 1)/.004166667 = 166451.75

    b) and c) --- very easy

    d)
    166451.75 = PV(1.004166667)^360 , where PV is present value . or your "lump sum"
    = 37256.33

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