Question

Candice Medavoy will invest $5,500 a year for 21 years in a fund that will earn 12% annual interest. Click here to view factor tables If the first payment into the fund occurs today, what amount will be in the fund in 21 years? If the first payment occurs at year-end, what amount will be in the fund in 21 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 $

Answer 1

The amount in the fund in 21 years if the first payment into the fund occurs today

Annual Payment (P) = $5,500 per year

Interest rate (r) = 12.00% per year

Number of years (n) = 21 Years

Future Value of an Annuity Due is calculated by using the following Formula

Future Value of an Annuity Due = (1 + r) x P x [{(1+ r) ⁿ - 1} / r]

= (1 + 0.12) x $5,500 x [{(1 + 0.12)²¹ – 1} / 0.0.12]

= 1.12 x $5,500 x [(10.803848 – 1) / 0.12)]

= 1.12 x $5,500 x [9.803848 / 0.12]

= 1.12 x $5,500 x 81.69874

= $503,264

The amount in the fund in 21 years if the first payment into the fund occurs at year-end

Annual Payment (P) = $5,500 per year

Interest rate (r) = 12.00% per year

Number of years (n) = 21 Years

Future Value of an Ordinary annuity is calculated by using the following Formula

Future Value of an Annuity Due = P x [{(1+ r) ⁿ - 1} / r]

= $5,500 x [{(1 + 0.12)²¹ – 1} / 0.0.12]

= $5,500 x [(10.803848 – 1) / 0.12)]

= $5,500 x [9.803848 / 0.12]

= $5,500 x 81.69874

= $449,343