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24 August, 09:28

Calculating the Number of Payments. You're prepared to make monthly payments of $250, beginning at the end of this month, into an account that pays 8 percent interest compounded monthly. How many payments will you have made when your account balance reaches $50,000?

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  1. 24 August, 10:20
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    128 payments

    Explanation:

    Since the payments begin at the end of the month, the formula for calculating the Future Value (FV) of an Ordinary Annuity is used as follows:

    FV = M * {[ (1 + r) ^n - 1] : r} ... (1)

    Where,

    FV = Future value of the amount = $50,000

    M = Annuity payment = $250

    r = Monthly interest rate = 8% : 12 = 0.67%, 0.0067

    n = number of periods the investment will be made = n

    Substituting the values into equation (1), we have:

    50,000 = 250 * {[ (1 + 0.0067) ^n - 1] : 0.0067}

    50,000/250 = [ (1.0067) ^n - 1] : 0.0067

    200 * 0.0067 = (1.0067) ^n - 1

    1.33 + 1 = (1.0067) ^n

    2.33 = (1.0067) ^n

    By loglinearizing the above, we have:

    ln2.33 = n * ln1.0067

    0.8473 = n * 0.0066

    n = 0.8473/0.0066

    n = 127.52, or 128 months approximately

    Therefore, the number of payments to make is approximately 128 payments.
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