A typical packaday smoker in Texas spends about 170 per mont

A typical pack-a-day smoker in Texas spends about $170 per month on cigarettes. If that smoker invests this money at the end of each month in a stock fund that pays a return of 5.3% compounded monthly, what would the account be worth at the end of 40 years?

Solution

$170 per month on cigarettes.

Future Value of Ordinary Annuity :

FV = C*[ (1+i)^n -1]/i

where C = Cash flow per period

i = interest rate

n = number of payments

i = 0.053 ; C = 170 ; n = 40*12 = 480

So, FV = 170[ 1.053^480 -1]/0.053

= $ 186978305997642.51 ( at the end of 40 yrs)