You invest $250 a month into a retirement account that has an annual interest rate of three percent. How much is the account worth after 10 years?
Using the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (initial deposit or loan amount) = $250
r = annual interest rate = 3% or 0.03
n = number of times the interest is compounded per year (assuming monthly compounding, so n = 12)
t = time the money is invested for (in years) = 10
A = $250(1 + 0.03/12)^(12*10)
A = $250(1 + 0.0025)^120
A = $250(1.0025)^120
A = $250 * 1.349858868
A = $337.46
After 10 years, the retirement account would be worth approximately $337.46.