Financial Technology Center - School of Business - Central Connecticut State University

To save money for a new house, you want to begin contributing money to a brokerage account. Your plan is to make 10 contributions to the brokerage account. Each contribution will be for $1,500. The contributions will come at the beginning of each of the next 10 years. The first contribution will be made at t = 0 and the final contribution will be made at t = 9. Assume that the brokerage account pays a 9 percent return with Monthly  compounding. How much money do you expect to have in the brokerage account nine years from now (t = 9)?

Financial calculator solution.
Calculate the FV of all but the final payment.
Change your calculator to BEGIN mode.
Inputs.
First, convert the 9 percent return with Monthly compounding to an annual effective rate .
EFF(9,12)=9.3807

N =9 * 1
I = 9.3807 / 1
PV = 0
PMT = -1500
Output: FV = 21,707.6397

You must then add the $1,500 at t = 9 to find the answer FV=21,707.6397+1500=23,207.6397