Your mother helped you start saving $25 a month beginning on your 10^th birthday. She always made you make your deposit on the first day of each month just to "start the month out right." Today,you turn 21 and have $4,482.66 in your account. What is your rate of return on your savings?

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to solve for the rate of return:
FV = PV*(1 + r)^n
where FV is the future value, PV is the present value, r is the rate of return, and n is the number of periods.
In this case, PV = 0 (since we started saving on the 10th birthday), n = 11*12 = 132 (since we saved for 11 years with monthly deposits), and FV = $4,482.66.
Solving for r, we get:
r = (FV/PV)^(1/n) - 1
r = ($4,482.66/0)^(1/132) - 1
r = 0.0529 or 5.29%
Therefore, our answer is B) 5.29%.

Your Mother Helped You Start Saving $25 a Month Beginning