Many persons prepare for retirement by making monthly contributions to a savings program. Suppose that $1,700 is set aside each year and invested in a savings account that pays 8% interest per year, compounded continuously.
a. Determine the accumulated savings in this account at the end of 21 years.
b. In Part (a), suppose that an annuity will be withdrawn from savings that have been accumulated at the EOY 21. The annuity will extend from the EOY 22 to the EOY 30. What is the value of this annuity if the interest rate and compounding frequency in Part (a) do not change?
Homework Answers
As the table given already contains factors with 8% continuous compounding so we do not need to find effective interest rate
a. Amount in the account after 21 yrs = 1700 * (F/A, 8%, 21) = 1700 * 52.4158 = 89106.86
b. Annuity from EOY 22 to 30 = 89106.86 * (A/P, 8%,9) = 89106.86 * 0.1623 = 14462.04
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