1. Suppose $26002600 is invested annually into an annuity that earns 55% interest. If P dollars are invested annually at an interest rate of r, the value of the annuity after n years is given by the following equation. Upper W equals Upper P left bracket StartFraction left parenthesis 1 plus r right parenthesis Superscript n Baseline minus 1 Over r EndFraction right bracketW=P(1+r)n−1r
How much is the annuity worth after 5 years?
2. Suppose that $90,000 is invested at 66% interest. Find the amount of money in the account after 4 years if the interest is compounded annually?
Answer:
Question 1)
Future value of Annuity FV=P*{(1+r)^n-1)/r}
P=Annuity payment =$26002600
r=Interest rate=55%
n=5 years
FV=26002600*{(1+55%)^5-1)/55%}
FV=$375,695,478.29
Question 2)
Future value of investment FV=P*(1+r)^n
P=Investment =$90000
r=Interest rate=66%
n=5 years
FV=90000*(1+66%)^5=$1,134,443.71
1. Suppose $26002600 is invested annually into an annuity that earns 55% interest. If P dollars...
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