Question

Mary makes monthly deposits of $450 at the end of each month over 25 consecutive years to support her retirement. If the account earns an interest rate of 7.5%, which amount comes closest to the value of the deposits at the end?
a. $120,938
b. $343,343
c. $382,667
d. $394,767
e. $367,100

Answer 1

Answer:

d. $394,767

Explanation:

For computing the amount of deposit at the end we need to apply the future value formula i.e to be shown in the attachment

Given that,  

Present value = $0

Rate of interest = 7.5% ÷ 12 months = 0.625%

NPER = 25 years × 12 months = 300 months  

PMT = $450

The formula is shown below:

= -FV(Rate;NPER;PMT;PV;type)

So, after applying the above formula, the future value is $394,767