Question

Steve Eckel recently set up a TDA to save for his retirement. He arranged to have $130 taken out of each of his biweekly checks; it will earn

9 (7/8)%

interest. He just had his twenty-ninth birthday, and his ordinary annuity comes to term when he is 65. Find the following. (Round your answers to the nearest cent.)

(a) The future value of the account
$

(b) Steve's total contribution to the account
$

(c) The total interest
$

Answer 1

To find the future value of the account, use the formula for compound interest. Multiply the amount deducted from each biweekly check by the number of checks in a year and the number of years contributed to find Steve's total contribution. Subtract Steve's total contribution from the future value to find the total interest.

Step-by-step explanation:

To find the future value of the account, we can use the formula for compound interest: Future Value = Principal(1 + interest rate/number of periods)^(number of periods * number of years).

In this case, the principal is $130, the interest rate is 9 7/8% or 0.09875, the number of periods is 26 (biweekly checks in a year), and the number of years is 65 - 29 = 36.

Therefore, the future value of the account is 130(1 + 0.09875/26)^(26 * 36) = $..

To find Steve's total contribution to the account, we multiply the amount deducted from each biweekly check ($130) by the number of checks in a year (26) and the number of years he contributed (65 - 29 = 36).

Therefore, Steve's total contribution to the account is $130 * 26 * 36 = $..

To find the total interest, we subtract Steve's total contribution from the future value of the account: Total Interest = Future Value - Total Contribution.

Therefore, the total interest is $..