Question

Suppose that you earned a​ bachelor's degree and now​ you're teaching high school. The school district offers teachers the opportunity to take a year off to earn a​ master's degree. To achieve this​ goal, you deposit $4000 at the end of each year in an annuity that pays 6.5% compounded annually.

a. how much will you have saved at the end of 5 years?
b. Find the interest.

Answer 1

Explanation:

Answer:

a. The amount that is saved at the expiration of the 5 year period is $22,769.20¢

b. The amount of interest is $2,769.20¢

Explanation:

Since the amount that is deposited every year for a period of five years is $4,000 and the rate of the interest is 6.5%. We can always calculate the amount that is saved at the expiration of the five years.

We will first state the formula for calculating the future value of annuity:-

Future value of annuity =

`P[((1 + r)^(t)-1 )/(r)]`

Where P is the amount deposited per year.

r is the rate of interest

t is the time or period

and in this case, the actual value of P = $4,000

rate of interest, r is 6.5% = 0.065

time, t is 5 years.

Substituting e, we have:

Fv of annuity =

`4,000[((1 + 0.065)^(5)-1 )/(0.065 )]`

= 4,000 × [((1.065)^5)- 1/0.065]

= 4,000 × [(1.37 - 1)/0.065]

= 4,000 × (0.37/0.065)

= 4,000 × 5.6923

= $22,769.20¢

a. Therefore the amount that is saved at the end of the five (5) years is $22,769.20¢

b. To find the interest, we will calculate the amount of deposit made during the period of five years and subtract the sum from the current amount that is saved ($22,769.29¢).

Since I deposited 4,000 every year for five years, the total amount of deposit I made at the period =

4,000 × 5 = $20,000

The amount of interest is then = $22,769.20¢ - $20,000 = $2,769.20¢