Question 1198230: Bola,who plans to retire in 15 years contribute#1000 to an individual retirement plan semi annually. What will be the amount of annuity if the rate is 10% compounded annually
Answer by ikleyn(52781)   (Show Source):
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Bola,who plans to retire in 15 years contribute#1000 to an individual retirement plan
semi annually. What will be the amount of annuity if the rate is 10% compounded annually
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It is a classic Ordinary Annuity saving plan. The general formula is
FV =  , (1)
where FV is the future value of the account; P is the semi-annual payment (deposit);
r is the semi-annual percentage yield presented as a decimal;
n is the number of deposits (= the number of years multiplied by 2, in this case).
Under the given conditions, P = 1000; r = 0.1/2 = 0.05; n = 2*15 = 30.
So, according to the formula (1), Bola gets at the end of the 15-th year
FV =  =  = $66438.85.
Note that Bola deposits only 2*15*$1000 = $30,000. The rest is what the account earns/accumulates in 15 years.
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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.
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