Question

You just started a new job at a company that includes a retirement plan as one of its benefits. Every month, the company invests $200 in your retirement account earning 4.5% compounding monthly. Your plan is to work at the company for 5 years. How much will you have in your retirement account by then?

Answer 1

Apply the compound interest formula:

A = P (1 + r/n) ^nt

Where:

A = future value of investment ( principal + interest)

P = Principal amount

r = Nominal interest rate ( decimal form = 4.5/100= 0.045)

n= number of compounding periods per year ( 12 )

t= years

Replacing:

A = 200 ( 1 + 0.045/12) ^12 * 5

A = 200 ( 1.00375)^60

A = $250.35