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The future value of an annuity question: 1.a) Olana has been investing $7,000 at the end...

The future value of an annuity question:

1.a) Olana has been investing $7,000 at the end of each year for the past 10 years in a growth mutual fund. How much is the fund worth now assuming he has earned 11.6% compounded annually on his investment?

b) Amen has been investing $2,600 at the end of each year for the past 30 years in a growth mutual fund. How much is the fund worth now assuming he has earned 14% compounded annually on his investment?

Solutions

Expert Solution

Ans 1a) $ 120489.97

P = Periodic payments
r = rate of interest
n = no of years
Future Value of Annuity = P ( (1 + r)^n - 1 ) / r
7000* ((1 + 11.6%)^10 - 1) / (11.6%)
120489.97

Ans 1b) $ 927645.80

Future Value of Annuity = P ( (1 + r)^n - 1 ) / r
2600* ((1 + 14%)^30 - 1) / (14%)
927645.80

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