Question

At the end of each month, Sue makes a $500 deposit into a mutual fund. If her investment earns 5% interest compounded monthly, what will her annuity be worth in 30 years?

a. $320,502.12
b. $200,000.00
c. $450,632.87
d. $600,221.46

Answer 1

The annuity will be worth $320,502.12 in 30 years.

Step-by-step explanation:

To calculate the annuity worth, we can use the formula for the future value of an ordinary annuity:

Future Value = P × ((1+r)^n - 1)/r

Here, P is the monthly deposit ($500), r is the monthly interest rate (5%/12), and n is the number of months (30 years x 12 months/year). Plugging in these values, we get:

Future Value = 500 × ((1+0.05/12)^(30x12) - 1)/(0.05/12)

Calculating this expression gives us:

Future Value = $320,502.12