Question

Question 4

Without using finance calculator,

Refer to Johan's investment account, i.e. the monthly deposits made into his investment account:


Year Monthly deposits

2017 SR 500

2018 SR 400

2019 SR 700


Find the value of his investment at the end of 2019 if the investment rate was 12% compounded monthly. Find also the interest earned

Answer 1

These are annuities. We find by the formula:

$FVA=A\times\frac{(1+r)^n-1}{r}$

$r=\frac{0.12}{12}=0.01$

Find the future value and interests

2017-2019:

$FVA=A\times\frac{(1+r)^n-1}{r}=500\times\frac{(1+0.01)^{36}-1}{0.01}=21538.44$

interests:

$21538.44-500\times36=21538.44-18000=3538.44$

2018-2019

$FVA=A\times\frac{(1+r)^n-1}{r}=400\times\frac{(1+0.01)^{24}-1}{0.01}=10789.39$

interests:

$10789.39-400\times24=10789.39-9600=1189.39$

2019:

$FVA=A\times\frac{(1+r)^n-1}{r}=700\times\frac{(1+0.01)^{12}-1}{0.01}=8877.75$

$8877.75-700\times12=8877.75-8400=477.75$