Terry started saving $50 a month at age 25 in an account earning 6% compounded monthly.At age 40 she would have _____ in this account.(Use time value tables or financial calculator.Select the closest answer.)

Question

Quizplus · Accepted Answer

Using the formula for compound interest,

A = P(1 + r/n)^(nt),

where A is the amount, P is the principal (initial amount), r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.

In this case, P = $50 per month, r = 6%, n = 12 (compounded monthly), and t = 15 years.

So, the total amount at age 40 is:

A = $50[(1 + 0.06/12)^(12*15) - 1]/(0.06/12)
  = $50[(1.005)^180 - 1]/(0.005)
  = $50[14.541]
  = $727.05 x 2
  = $1,454.10 (rounded to the nearest dollar)

Therefore, the closest answer is E: $14,541.

Terry Started Saving $50 a Month at Age 25 in an Account