Scribd Logo
Upload

Welcome to Scribd!

  • JA FV Annuity

    Uploaded by

    mobinil1
    18 views1 page
    The parents started a retirement account when the person was born, contributing $500 monthly. When the person gets a job, they will take over the contributions. To calculate how much will be in the account after 65 years with 6.75% annual interest compounded monthly, the future value of an annuity formula is used. With $500 monthly payments over 65 years (780 periods) at a monthly interest rate of 0.5625%, the future value of the retirement account will be over $6.9 million.

    Original Description:

    Calculation of Future Value of an Ordinary Annuity

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The parents started a retirement account when the person was born, contributing $500 monthly. When the person gets a job, they will take over the contributions. To calculate how much will be in the account after 65 years with 6.75% annual interest compounded monthly, the future value of an annuity formula is used. With $500 monthly payments over 65 years (780 periods) at a monthly interest rate of 0.5625%, the future value of the retirement account will be over $6.9 million.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    18 views1 page

    JA FV Annuity

    Uploaded by

    mobinil1
    The parents started a retirement account when the person was born, contributing $500 monthly. When the person gets a job, they will take over the contributions. To calculate how much will be in the account after 65 years with 6.75% annual interest compounded monthly, the future value of an annuity formula is used. With $500 monthly payments over 65 years (780 periods) at a monthly interest rate of 0.5625%, the future value of the retirement account will be over $6.9 million.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    Your parents start a retirement account for you when you are born.

    They decide to put aside $500


    every month, then when you get your own job, you take over the deposits. How much money
    will you have in your retirement acc if the account collects 6.75% interest over 65 years,
    compounded monthly?

    Since the monthly savings are fixed throughout the period, then this is an annuity and we want to
    calculate the future value of this annuity.

    The Monthly Payment (PMT) = $500


    Annual Interest = 6.75%
    Number of Years = 65
    Since savings is monthly, therefore interest is also compounded on a monthly basis

    The monthly interest therefore would be:

    6.75 % 0.0675
    = =0.005625
    12 12

    Also, 65 years would be multiplied by 12 to arrive at the total number of payments:

    65 ×12=780 periods

    The formula for calculating future value (FV) of annuity is:

    ( 1+ r )n−1 ( 1+ 0.005625 )780 −1


    FV of Annuity=PMT [ ]=$ 500[ ]
    r 0.005625

    = $6,973,886.633052

    You might also like