The Pirerras are planning to go to Europe 3 years from now a

The Pirerras are planning to go to Europe 3 years from now and have agreed to set aside $140/month for their trip. If they deposit this money at the end of each month into a savings account paying interest at the rate of 2%/year compounded monthly, how much money will be in their travel fund at the end of the third year? (Round your answer to the nearest cent.)

Solution

FV=Travel Fund= [ PMT * (((1 + r/n)^nt - 1) / (r/n)) ]

Where PMT = the monthly payment
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

Here PMT = 140. r = 2/100 = 0.02 (decimal). n = 12. t = 3.

therefore Tavel Fund at the end of 3rd year=[ PMT * (((1 + r/n)^nt - 1) / (r/n)) ]

[ 140 * (((1 + (0.02/12))^36 - 1) / (0.02/12) ]=$ 5189.815   Ans.