Question

Maria Medavoy will invest $6,420 a year for 24 years in a fund that will earn 5% 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 24 years? If the first payment occurs at year-end, what amount will be in the fund in 24 years? Please don't round.

Answer 1

PART 1 When payment is done at the start of the year

Future Value of an annuity due: FV = Pmt x ((1+r)ⁿ -1))/r) x (1+r)

where PMT = $ 6,420. r = 5% and t = 24 years

solving it will give $6,420 x ((1+0.05)²⁴ -1))/0.05) x 1.05 = $ 299,287.97

PART 2 When payment is done at the end of the year

Future Value of an annuity due: FV = Pmt x ((1+r)ⁿ -1)) x (1+r)

where PMT = $ 6,420. r = 5% and t = 24 years

solving it will give $6,420 x ((1+0.05)²⁴ -1)) x 1.05 = $285,702.83

Hope this helps, if not please let know in comments. We expert here put lots of effort to give correct and quality answer to students. Please mark the answer as helpful for the efforts put, it will mean alot. Thanks