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11 July, 03:55

Item 5 Item 5

You are earning an average of $47,400 and will retire in 10 years. If you put 20% of your gross average income in an ordinary annuity compounded at 7% annually, what will be the value of the annuity when you retire?

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  1. 11 July, 07:26
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    Answer: the value of the annuity when you retire is $130919

    Step-by-step explanation:

    We would apply the future value which is expressed as

    FV = C * [{ (1 + r) ^n - 1}/r]

    Where

    C represents the yearly payments.

    FV represents the amount of money

    in your account at the end of 10 years.

    r represents the annual rate.

    n represents number of years or period.

    From the information given,

    r = 7% = 7/100 = 0.07

    C = 20/100 * 47400 = $9480

    n = 10 years

    Therefore,

    FV = 9480 * [{ (1 + 0.07) ^10 - 1}/0.07]

    FV = 9480 * [{1.967 - 1}/0.07]

    FV = 9480 * 13.81

    FV = $130919
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