How to calculate compounding interest and maturity value of recurring deposit. e.g. Mr A deposit $ 1000 per month in bank @ 5% p.a. for 5 years. Interest compound quarterly. How t0 calculate maturity value. Plzz guide..
2 Answers
The annual nominal interest is 5% compounded quarterly: i = 0.05
so the quarterly interest q = i/4 = 0.0125
The annual effective interest a = (1 + q)^4 - 1 = 0.0509453
Monthly interest r = (1 + a)^(1/12) - 1 = 0.00414943
or in one step r = (1 + i/4)^(4/12) - 1 = 0.00414943
The maturity value s is the sum of the deposits with compounded interest
(formula derived here)
So with d = 1000 and n = 60 months
s = (d (1 + r) ((1 + r)^n - 1))/r = 68252.23
The total interest is s - n d = 8252.23
Check
Confirming with the online calculator posted by C8H10N4O2.
answered May 25, 2020 at 20:51
You want to look up the future value of a growing ordinary annuity, taking care to compound quarterly. See this online calculator.
