Question

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?

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