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Math Help - help with amortization/sinking funds?

  1. #1
    Newbie Almondzqueen's Avatar
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    help with amortization/sinking funds?

    This is my problem:
    Lauren plans to deposit $5000 into a bank account at the beginning of next month and $200/month into the same account at the end of that month and at the end of each subsequent month for the next 5 yr. If her bank pays interest at a rate of 6%/year compounded monthly, how much will Lauren have in her account at the end of 5 yr? (Assume she makes no withdrawals during the 5-yr period.

    Formula I used looks like this:
    S=R [ (1+.06/12) ^60-1]/.06/12= 13954

    I suppose I need help with the second part since I have no clue how to include the initial $5000. I am having trouble plugging the correct numbers into A= p(1+rt)^nt. I feel very stuck...

    Help and guidance is greatly appreciated, thank you.
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  2. #2
    MHF Contributor
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    With such a formula that has an exponent of 60, how many interest crediting periods did the very first deposit experience?
    Your initial bolus should have one more period collecting interest than had that first payment.

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  3. #3
    MHF Contributor
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    i = .06/12

    S = 5000(1 + i)^60 + 200[(1 + i)^60 - 1] / i
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  4. #4
    Newbie Almondzqueen's Avatar
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    Ok, this makes more sense to me now. Thanks so much Wilmer.
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  5. #5
    MHF Contributor
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    Welcome, Queen !
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