$100 dollars is deposited each month for 20 years into an account paying 6% interest, compounded monthly. No more deposits are made but the account still earns interest. How much is in the account when the person retires 25 years after the last deposit?
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To calculate the amount after the first 20 years during which time $100 is deposited monthly use the formula:
`F=(x[(1+i)^n-1])/i` where F= the total after 20 years, x=$100pm, i=6% compounded monthly=`0.06/12=0.005` and n=20 years x12 months (compounded monthly)=240.
`therefore F=$46204.08952` As the calculations will continue, do not round off at this stage.
Now calculate the amount saved after a further 25 years. As there are no deposits , use the formula:
`F=P(1+i)^n` where P=$46 204.08952 and n=25 x12=300 i=0.005 as we are still compounding monthly and F will be the final total.
`therefore F=$206299.86` (rounded off)
After 20 years of monthly deposits of $100 and another 25 years of continuing compound interest on the accumulated amount, the total amount saved will be $206 299.86.
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