Question
Joe needs
in 4 years. What amount can he deposit at the end of each month at
annual rate of interest compounded monthly, so he will have his
? Round to the nearest cent.
A.
B.
C.
D.
A.
B.
C.
D.
Ask by Beck King. in the United States
Jan 11,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Joe needs to deposit approximately $226.35 at the end of each month to reach $12,000 in 4 years with a 5% annual interest rate compounded monthly.
Solution
To determine how much Joe needs to deposit at the end of each month to accumulate
in 4 years with an annual interest rate of
compounded monthly, we can use the future value of an ordinary annuity formula:
Where:
-
(future value) -
(monthly interest rate) -
(total number of payments) -
is the monthly payment we need to find.
Rearranging the formula to solve for
:
Plugging in the values:
First, calculate
:
Then,
Rounding to the nearest cent, the monthly deposit amount is approximately $226.42.
Among the provided options, the closest value is:
Answer: A.
Answered by UpStudy AI and reviewed by a Professional Tutor
Like
error msg


Beyond the Answer
To find the monthly deposit Joe needs to make, we can use the future value of a series formula, which is:
Where:
-
is the future value ($12,000) -
is the monthly deposit -
is the monthly interest rate (annual rate / 12) -
is the total number of deposits (months)
Given:
-
- Annual interest rate =
or - Monthly interest rate
- Total months
We need to solve for
:
Rearranging the formula gives:
Substituting the values we have:
Calculating:
- Calculate
:
- Subtract 1:
- Calculate the numerator:
- Calculate
:
Thus, the amount Joe needs to deposit at the end of each month is
.
Joe will indeed have exactly $12,000 in 4 years if he follows this plan!