A) You begin placing $4,000 into an Individual Retirement Account at age 23 hoping to retire...

A) You begin placing $4,000 into an Individual Retirement Account at age 23 hoping to retire at age 60. If you can earn 8% on your investment, how much will you have at when you would like to retire?

B) You have won a $500 million Lotto and are given the choice of receiving $19,230,769.23 every year for the next 26 years, or receiving one lump sum payment. If the discount rate is 4%, how much would the lump sum payment be?

Solutions

Expert Solution

1.
=Future value of annuity=Deposits/rate*(1+rate)^n-1)=4000/8%*(1.08^38-1)=881263.781584357

2.
=Present value of annuity=Payments/rate*(1-1/(1+rate)^n)
=19230769.23/4%*(1-1/1.04^26)=307360945.69131

jeff jeffy answered 2 years ago

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