At the time of her grandson's birth, a grandmother deposits $4000 in an account that pays 5% compounded monthly. What will be the value of the account at the child's twenty-first birthday, assuming that no other deposits or withdrawals are made during this period?

Before we apply the formula, we have to notice that there is and inconsistency. The interest rate is compounded monthly but n is in years. So, we must change i or n. We will change the interest.

First, we have to transform the periodic interest rate into an Effective Annual rate using this formula:

Effective Annual rate= [(1+periodic interest)^(n)] -1

Effective Annual rate= [(1+5%)^(12)]-1= 79,59%

Now, we can apply the first formula:

FC= $4000*(1+79,59%)^(21)= $874,507,135

At the time of her​ grandson's birth, a grandmother deposits $4000 in an account that pays 5% compounded monthly. What will be the value of the account at the​ child's twenty-first​ birthday, assuming that no other deposits or withdrawals are made during this​ period?

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At the time of her grandson's birth, a grandmother deposits $4000 in an account that pays 5% compounded monthly. What will be the value of the account at the child's twenty-first birthday, assuming that no other deposits or withdrawals are made during this period?