Question

A.)How much do you need to invest semiannually into an ordinary annuity earning an annual interest...

A.)How much do you need to invest semiannually into an ordinary annuity earning an annual interest rate of 7.12% compounded semiannually so that you will have $5,953.19 after 7 years?

B.) If you make quarterly deposits of $309.00 into an ordinary annuity earning an annual interest rate of 5.74%, how much will be in the account after 15 years? How much interest did you earn in those 15 years?

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Answer #1

FV of ordinary annuity is mathematically represented as:

a) r = 7.12%/2 = 3.56% (semi-annually); n = 7 * 2 = 14 semi-annual periods, FV = $5,953.19

5,953.19 = P * 17.7495

P = $335.40

b) r = 5.74%/4 = 1.435% (quarterly), n = 15 * 4 = 60 quarters, P = $309

FV = $29,093.25

Interest = $29,093.25 - (60 * 309) = $10,553..25

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