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29 December, 01:16

Calculating annuity future values you are to make monthly deposites of 500 into a retirement account that earns an apr of 9.5 percent compounded monthly. if your first deposit will be made one month from now, how large will your retirement account be in 35 years?

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  1. 29 December, 02:45
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    The retirement account will have value of $1,669,731

    Explanation:

    Payment of a fixed amount for a specified period is called ordinary annuity.

    Future value of ordinary annuity formula will be used to calculate the amount of retirement account after 35 years.

    Annuity Future value = C x [ ((1 + r) ^t) - 1 ] / r

    Where

    C = Monthly payment = $500

    r = rate of interest = 9.5% = 9.5% / 12 = 0.792% = 0.00792

    t = time period = 35 years = 35 x 12 = 420 months

    AFV = $500 x [ ((1 + 9.5%/12) ^420) - 1 ] / (9.5%/12)

    AFV = $1,669,731.48 = $1,669,731
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