44.9k views
2 votes
Find the value of the annuity and the interest. Round to the nearest dollar.

Periodic Deposit: $100 at the end of each year
Rate: 4% compounded annually
Time: 7 years
The principal represents an amount of [50000

1 Answer

4 votes

Final answer:

The question involves calculating the future value and interest of an annuity where $100 is deposited annually at a 4% interest rate, compounded annually, over 7 years. The future value is calculated using the annuity formula, and interest earned is the difference between the future value and the total deposits.

Step-by-step explanation:

The subject of this question is to calculate the future value of an annuity and the interest earned. An annuity is a series of equal payments made at regular intervals. In this case, the payments are $100 at the end of each year, the interest rate is 4% compounded annually, and the time is 7 years. To find the future value of the annuity, we use the formula for the future value of an ordinary annuity:

Future Value = P × ((1 + r)n - 1) / r

where P is the periodic deposit, r is the interest rate per period, and n is the number of periods. Plugging in our values we get:

Future Value = $100 × ((1 + 0.04)7 - 1) / 0.04

Calculating the above, we find the future value of the annuity. To find the total interest earned, we deduct the total deposits made over the 7 years from the future value of the annuity:

Interest Earned = Future Value - (Periodic Deposit × Number of Periods)

User Damir Tenishev
by
8.6k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories