Question

Pearl Medavoy will invest $7,990 a year for 19 years in a fund that will earn 10% annual interest Click here to view factor tables If the first payment into the fund occurs today, what amount will be in the fund in 19 years? If the first payment occurs at year end, what amount will be in the fund in 19 years? (Round factor values to 5 decimal places, eg. 1.25124 and final answers to 0 decimal places, eg.458,581)

a. First payment today ____________$
b. First payment at year-end __________ $

Answer 1

a.$449,637

b.$408,761

Step-by-step explanation:

Future value of first payment today or first payment at year-end can be calculated by multiplying the present value by the cumulative FV factor of 10% for 19 years of an annuity due and for 19 years of ordinary annuity respectively.

Future value of first payment today = $7,990 * Cumulative FV factor at 10% for 19 years of annuity due

Future value of first payment today = $7,990 * 56.275

Future value of first payment today = $449,637

Future value of first payment at year-end = $7,990 x Cumulative FV factor at 10% for 19 years of annuity

Future value of first payment at year end = $7,990 x 51.15909

Future value of first payment at year end = $408,761