Question

Sally Medavoy will invest $6,740 a year for 23 years in a fund that will earn 5% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 23 years? If the first payment occurs at year-end, what amount will be in the fund in 23 years? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.)

First payment today $ ?

First payment at year-end $ rounded to 0 decimal places ?

Answer 1

a.Future value of annuity due=(1+rate)*Annuity[(1+rate)^time period-1]/rate

=1.05*6740[(1.05)^23-1]/0.05

=6740*43.502

=$293203(Approx)

b.Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=6740[(1.05)^23-1]/0.05

=6740*41.43048

=$279241(Approx)