Tara has $85 deducted from her paycheck at the end of each month and put into a savings account earning 9% interest compounded monthly. She continues these deposits for 10 years. Approximately how much is the account worth at the end of the 10 years?
A) $208
B) $2496
C) $16,450
D) $21,150

Question

Quizplus · Accepted Answer

The amount of money being added to the account each month is constant, so we can use the formula for the future value of an annuity:

FV = PMT * (((1 + r)^n - 1) / r)

Where FV is the future value, PMT is the payment each month, r is the monthly interest rate (9% / 12), and n is the number of months (10 years * 12 months/year = 120 months).

Plugging in the numbers, we get:

FV = 85 * (((1 + 0.09/12)^120 - 1) / (0.09/12)) = $16,450.07

Therefore, the best choice is C.

Tara Has $85 Deducted from Her Paycheck at the End