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To solve the problem below, you would take the 10.3% annual rate and divide it b

ID: 2757307 • Letter: T

Question

To solve the problem below, you would take the 10.3% annual rate and divide it by 12 (.8583) and then take your number of periods 30 years x 12 (360) to calculate future value. But, do you also divide the payments by 12? I am confused...help

You make $5,400 annual deposits into a retirement account that pays 10.5 percent interest compounded monthly.

   

How large will your account balance be in 30 years?

How large will your account balance be in 30 years?

Required:

How large will your account balance be in 30 years?

Explanation / Answer

Principle(p) = $5400

Rate(r)= 10.5%

Time(t)= 30 years

compounded monthly n= 12

Amount (a) = P(1+r/(100*n))^n*t

A=5400(1+10.5/12)^30*12=124299.95

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