Question

In: Finance

Financial calculatorJennifer Smith has invested $500 at the beginning of each yearfor 10 years....

Financial calculator

Jennifer Smith has invested $500 at the beginning of each year for 10 years. If she earned a 6% rate of return how much money will she have at the end of 10 years?

a. 895.42

b. 6590.40

c. 6985.82

d. None of the above


Solutions

Expert Solution

Amount of deposit each year (P)= 500

Number of years (n)= 10

Rate of return (I)= 6%

Each amount is invested each year beginning, so it Annuity due.

Future value of Annuity due formula = P*(1+I)*(((1+I)^n)-1)/I

=500*(1+6%)*(((1+6%)^10)-1)/6%

=6985.821319

So she will have $6985.82 in 10 years.

Financial calculator steps:

Rate = 6%

N (years)= 10

PMT =-500

Present value = 0

End or beginning = 1 (1 is for Annuity starts at Beginning)

Press CPT and FV

= 6985.82


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