Question

Periodic Deposit ?$70 at the end of each month Rate 7.5?% compounded monthly Time 20 years...

Periodic

Deposit

?$70 at the end of each month

Rate

7.5?% compounded monthly

Time

20 years

a.

Use the following formula to find the value of the annuity.

Upper A equals StartStartFraction Upper P left bracket left parenthesis 1 plus StartFraction r Over n EndFraction right parenthesis Superscript nt Baseline minus 1 right bracket OverOver StartFraction r Over n EndFraction EndEndFractionA=P1+rnnt?1rn

b.

Find the interest.

a. After 20 ?years, you will have approximately $?.

?(Do not round until the final answer. Then round to the nearest dollar as? needed.)

Homework Answers

Answer #1

(a) Equal deposits of $ 70 are made at the end of each month beginning from next month for a period of 20 years or 240 months at a rate of 7.5 % per annum compounded monthly

Monthly Interest Rate = 7.5 / 12 = 0.625 % per month

Annuity Value after 20 years = 70 x (1.00625)^(239) + 70 x (1.00625)^(238) + ............+ 70 x (1.00625) + 70 = $ 38761.151

(b) Interest Paid = Annuity Value after 20 years - (Monthly Deposits x Number of Deposits) = 38761.151 - (70 x 240) = $ 21961.151

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