Eloise is investing in a retirement account. she plans on adding an additional $50 at the end of every year and the expected monthly rate of return is 0.25% of the amount invested, calculated at the end of the month. if she starts with $1000 in the account how much money will she have two years after she started the investment?
a. $.76
b. $1113.28
c. $1161.76
d. $1163.28

This is a monthly compounded investment with additional investment at the end of the year.

First year:

Investment, P: $1000
interest rate, r: 0.25% = 0.0025
Number of periods, n = 12

Return: P* (1 + r)^n = 1000 * (1+0.0025)^12 = 1,030.416

Second year:

Investment: 1030.416 + 50 = 1,080.416
r = 0.0025
n = 12

Return: 1080.416 * (1+0.025)^12 = 1,113.278 = 1,113.28

Now you have to add the $50 that she puts at the end of the second year => 1,113.28 + 50 = 1,163.28

$1,163.28 (option d.)

 

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