You set up a college fund in which you pay $2500 each year atthe end...

You set up a college fund in which you pay $2500 each year at the end of the year. How much money will you have accumulated in the fund after 10 years, if your fund earns 8% compounded annually?

Solutions

Expert Solution

Future Value of Annuity :
Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$ 2,500.00
Int Rate	8.000%
Periods	10 years

FV of Annuity = Cash Flow * [ [ ( 1 + r ) ^ n ] - 1 ] /r
= $ 2500 * [ [ ( 1 + 0.08 ) ^ 10 ] - 1 ] / 0.08
= $ 2500 * [ [ ( 1.08 ) ^ 10 ] - 1 ] / 0.08
= $ 2500 * [ [2.1589] - 1 ] / 0.08
= $ 2500 * [1.1589] /0.08
= $ 36216.41

if we deposit $ 2500 each year at 8 %, it will be accumulated to $ 36216.41

jeff jeffy answered 1 year ago

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