Question

The Pirerras are planning to go to Europe 2 years from now and have agreed to set aside $170/month for their trip. If they deposit this money at the end of each month into a savings account paying interest at the rate of 5%/year compounded monthly, how much money will be in their travel fund at the end of the second year?

Answer 1

Answer:

They will have $4,281.61 at the end of second year.

Explanation:

This is an annuity problem. Use formula for finding FV of annuity to get the correct answer

FVA=$\frac{PMT}{r} [(1+r)^{n} -1]$

PMT=170

r = 0.05/12= 0.0041667

n = 2*12= 24 months

FVA= $(170/0.0041667)*[(1+\frac{0.05}{12} )^{24} -1]= 4281.606$