Nada recently set up a tax-deferred annuity to save for his retirement. He arranged to have...
Nada recently set up a tax-deferred annuity to save for his retirement. He arranged to have BD 50 taken out of each of his monthly checks; it will earn 4% annual interest. She just had his 25 birthday, and his ordinary annuity comes to term when he is 65. Find the following: a. Find the future value of Nada’s annuity. (3 Marks) b. Find Nada’s total contribution to the annuity. (1 Mark) c. Find the total interest earned on the annuity.
Homework Answers
Future value of the ordinary annuity = annuity [ ( 1+r)^t - 1 ] / r
r is the rate of interest
t = no of years
Future value of the ordinary annuity = 50 ( 1.04 ^40 - 1 ) / 0.04 = $4,751.28
Nada’s total contribution to the annuity = 50 *40 = $2000
total interest earned on the annuity = 4751.28 - 2000
= $ 2751.28
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