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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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