You are planning to go to Europe 4 years from now and have agreed to set aside RM200 each month for trip. If you deposit this money at the end of month into savings account paying interest at the rate of 8%/year compounded monthly, how much money will be in your travel fund at the end of third year?
To calculate the amount of money that will be in your travel fund at the end of the third year, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final amount of money
P = the initial deposit (RM200 each month)
r = the annual interest rate (8%)
n = the number of times the interest is compounded per year (12 for monthly compounding)
t = the number of years
In this case, we are interested in the amount of money after three years, so t = 3. Let's plug in the values and calculate:
P = RM200
r = 8% (or 0.08 as a decimal)
n = 12
t = 3
A = 200(1 + 0.08/12)^(12*3)
A = 200(1 + 0.0066667)^(36)
A = 200(1.0066667)^(36)
A ≈ 200(1.2537497)
A ≈ RM250.75
Therefore, at the end of the third year, there will be approximately RM250.75 in your travel fund.