Question

Nick can invest $10,000 in either one of two annuities. Annuity A has a 6% annual interest rate and requires a starting principal of $9,000, plus annual $100 deposits for the next 10 years. Annuity B has a 12% annual interest rate and requires a starting principal of $9,000, plus annual $200 deposits for the next 5 years.

What is the difference between the final balances of the two annuities?

Answer 1

7.95%

An annuity due is an annuity whose payment is due immediately at the beginning of each period. A common example of an annuity due payment is rent, as landlords often require payment upon the start of a new month as opposed to collecting it after the renter has enjoyed the benefits of the apartment for an entire month.

Answer 2

$313.57

Explanation:

Compound interests and and compound numbers need:

• A base number (starting amount)
• Multiplier (percentage)
• And power (time period)

This means the original amount is multiplied in the first example by 106%, and the product of that is multiplied by 106%, until its done 10 times for 10 years.

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