Question

An ordinary annuity was purchased 5 years ago. The annuity pays 8% compounded quarterly. The quarterly payments have been $500. What is the amount of interest earned on the annuity to date?

Answer 1

Quarterly Payments in annuities = $500

Calculating the Present Value of annuities 5 years ago:-

Where, C= Periodic Payments = $500

r = Periodic Interest rate = 8%/4 = 2%

n= no of periods = 5 years*4 = 20

Present Value = $8,175.72

Now, Calculating the Interest earned on annuity till date:-

Interest earned = ($500*20) - $8175.72

= $1824.28

So, the amount of interest earned on the annuity to date is $1824.28

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