Question

Marcus and Rachel want to save up $25 000 for a deposit on an apartment in 6 years' time. They aim to pay around half the deposit each. Marcus invests an inheritance of $9000 in a bank account where it earns 8% p.a. Rachel invests $100 at the beginning of each month where it earns 9% p.a.
a) What is the future value of Marcus's investment after 6 years? (Answer- 14 281.87)
b) How much will Rachel's investment be worth after 6 years? (Answer- $9571.96)

Thanks for any help

Answer 1

(a) 9000*1.08^6 = ?
(b) If the $100 had been invested at the end of each month, then the FV would have been
100((1+ .09/12)^72-1)/(1+.09/12 - 1) = 9500.71
Since it was invested at the beginning, it's like an extra month, but the original $100 has to be disregarded. So, the FV is
100((1+ .09/12)^73-1)/(1+.09/12 - 1) - 100
Study your formulas and their derivation.

Answer 2

Thank you. I read a) wrong. I did Q a) just like I did b). Didn't notice that a) was compound interest.