Question

4. As part of your retirement planning, you purchase an annuity that pays 4 % annual

interest compounded quarterly
a. If you make quarterly payments of $900 how much will you have saved in 5
years?
b. Instead, if you make quarterly payments of $450, how much will you have saved
in 10 years?

Answer 1

9514 1404 393

Answer:

a. $19817.10

b. $21998.87

Explanation:

The formula for the future value of an annuity with payments "A" and interest at rate r compounded quarterly for t years is ...

FV = A((1 +r/4)^(4t) -1)/(r/4)

The attachment shows this evaluated for ...

a. A = 900, r = 0.04, t = 5. FV = $19817.10

b. A = 450, r - 0.04, t = 10. FV = 21,998.87