Business Math ( Future ordinary Annuities)

Howard has deposited RM1000 at the end of each month into a retirement savings plan for the last 10 years in his working life. His deposits earned an interest rate of 2.5% per month for the first 4 years and 3% per month for the rest of the years.
What is the accumulated value of his retirement savings plan?

asked by Tracy
  1. Think of it as 48 payments of 1000 at 2.5%, then that sum riding along for 72 periods at 3% plus 72 payments of 1000 for the next 72 periods

    amount = 1000(1.025^48 - 1)/.025 (1.03)^72 + 1000(1.03^72 - 1)/.03
    = 1,009,889.30

    posted by Reiny
  2. can i ask why the first four years need to multiply (1.03)^72

    posted by Tracy
  3. You should get into the habit of making a time graph on a straight line for these kind of questions.

    Think of the whole thing as being in two accounts.
    1000(1.025^48)/.025 would be amount you would have at the end of 4 years, sitting at time 4
    But you want that amount at time 10, with a new interest rate of 3%
    So you have to find the future amount of the above value sitting at 4 accumulating at 3% for the next 6 years.
    In your second account, my second term in the equation, thing of it as a new account starting at time 4 and going on for 72 months.

    posted by Reiny
  4. okay, i get it. Thanks for helping

    posted by Tracy

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