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Chapter 6: Question 5BE (page 302)

Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 6% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years?

Short Answer

Expert verified

The amount of funds in 20 years if the first payment occurs today will be $31,1942, and the amount of funds in 20 years if the first payment at the year-end will be $294,285

Step by step solution

01

Calculation of the amount of the fund in 20 years if the first payment occurs today

FV-AD=R(FVF-ADn,i)=8,000×38.99275=$311,942

02

Calculation of the amount of the fund in 20 years if the first payment at the year-end

FV-AD=R(FVF-OAn,i)=8,000×36.7855=$294,285

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