Question

In: Finance

At 21 Julio begins saving 1250 each year until age 35 in an ordinary annuity paying...

At 21 Julio begins saving 1250 each year until age 35 in an ordinary annuity paying 5.7% annual interest compound yearly and then leaves his money in the account until age 65.

Solutions

Expert Solution

Step 1
Calculation of future value of annuity at the end of 35th year
We can use the future value of annuity formula to calculate this value.
Future value of annuity = P x {[(1+r)^n -1]/r}
Future value of annuity = value of savings at the age of 35 = ?
P = Annual savings = $1250
r = rate of interest per annum = 5.7%
n = no.of years = 15
Future value of annuity = 1250 x {[(1+0.057)^15 -1]/0.057}
Future value of annuity = 1250 x 22.75103
Future value of annuity = $28,438.79
Future value of savings at the age of 35 = $28,438.79
Step 2
Calculation of value of savings at the age of 65
We can use the future value of sum formula to calculate this value.
Future value of sum = P x (1+r)^n
Future value of sum = Future value of value calculated in step 1 at the end of 65th year = ?
P = Value calculated in step 1 = $28438.79
r = rate of interest per annum = 5.7%
n = no.of years = 30
Future value of sum = 28438.79 x (1+0.057)^30
Future value of sum = 150024
The answer is
Value of savings at the age of 65 = $1,50,024

Related Solutions

At age 21 Julio begins saving $750 each year until age 35 (15 payments) in an...
At age 21 Julio begins saving $750 each year until age 35 (15 payments) in an ordinary annuity paying 6.5​% annual interest compounded yearly and then leaves his money in the account until age 65​ (30 years). His friend Max begins at age 41 saving $1,500 per year in the same type of account until age 65​ (25 payments). How much does each have in his account at age​ 65?
21. the following ordinary annuity, the interest is compounded with each payment, and the payment is...
21. the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period. Find the required payment for the sinking fund. (Round your answer to the nearest cent.) Monthly deposits earning 4% to accumulate $3000 after 10 years. 22. the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period. Find the required payment for the sinking...
1. The 25 year old invests $2,000 a year until the age of 65 The 35...
1. The 25 year old invests $2,000 a year until the age of 65 The 35 year old invests $2,000 a year until the age of 65 We’ll assume they both get the same rate of return on their dollar, in this example we’ll use 8%. Where will each of them be when they reach the age of 65? What is the difference in the two investment choice? Place the difference between the two $ amounts as your final answer....
You begin saving for your retirement through an ordinary annuity that is deposited into a mutual...
You begin saving for your retirement through an ordinary annuity that is deposited into a mutual fund over the next 30 years (30 payments in total). Assume you leave your funds in this mutual fund throughout your lifetime and it earns 12% per year. Once you retire you expect to live for an additional 25 years. In retirement you would like to receive an annuity due for these 25 years of $200,000 per year. How much must you deposit into...
Related to The Business of​ Life: Saving for​ Retirement)  ​(Future value of an ordinary​ annuity)  You...
Related to The Business of​ Life: Saving for​ Retirement)  ​(Future value of an ordinary​ annuity)  You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$4,900 at the end of each year into a Roth IRA for the next 45 years. If you earn 10 percent compounded annually on your​ investment, how much will you have when you retire in 45 ​years?...
elated to The Business of​ Life: Saving for​ Retirement)  ​(Future value of an ordinary​ annuity)  You...
elated to The Business of​ Life: Saving for​ Retirement)  ​(Future value of an ordinary​ annuity)  You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$4 comma 9004,900 at the end of each year into a Roth IRA for the next 4545 years. If you earn 1010 percent compounded annually on your​ investment, how much will you have when you retire in...
(Solving for PMT of ordinary annuity) you want to have $50,000 by saving at the end...
(Solving for PMT of ordinary annuity) you want to have $50,000 by saving at the end of each of the next 10 years. If the opportunity cost of capital (interest rate) is 12% per year, compounded annually, how much must you save annually. Please show all work!
What's the future value of a 10%, 5-year ordinary annuity that pays $400 each year? If...
What's the future value of a 10%, 5-year ordinary annuity that pays $400 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent. Future Value of an Ordinary Annuity: $ Future Value of an Annuity Due: You borrow $270,000; the annual loan payments are $17,563.89 for 30 years. What interest rate are you being charged? Round your answer to the nearest whole number. %
What's the future value of a 4%, 5-year ordinary annuity thatpays $700 each year? If...
What's the future value of a 4%, 5-year ordinary annuity that pays $700 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent.Future Value of an Ordinary Annuity: $  Future Value of an Annuity Due: $  
What's the future value of a 3%, 5-year ordinary annuity that pays $200 each year? If...
What's the future value of a 3%, 5-year ordinary annuity that pays $200 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent. Future Value of an Ordinary Annuity: $   Future Value of an Annuity Due: $  
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT