Lucy Ricardo has subscribed to a dollar cost averaging program in which she invests $900 at the beginning of each month. If her rate of return is 12% compounded monthly, what will be the value of her account after 25 years?

Question

Quizplus · Accepted Answer

The value of Lucy's account after 25 years can be calculated using the future value of a series formula for dollar cost averaging: $FV = P \times \frac{((1 + r)^n - 1)}{r}$, where P is the amount invested at each period, r is the monthly interest rate, and n is the total number of payments. Given P = $900, r = 0.12/12 = 0.01 (since 12% annual interest compounded monthly gives a monthly rate of 1%), and n = 25 years * 12 months/year = 300 months, substituting these values into the formula gives the future value of Lucy's account, which matches the option (A) $1,707,872.

Lucy Ricardo Has Subscribed to a Dollar Cost Averaging Program