Question 1152730: A)Find the value to each annuity. Round to the nearest dollar
B) Find the interest
Periodic Deposit=$2000 at the end of each year Rate=5% compounded annually Time=20 years
**Not sure which formula to use. Please advise. Thank you in advance***.
Syl
Answer by ikleyn(52847)   (Show Source):
You can put this solution on YOUR website! .
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 your annual payment (deposit); r is the annual percentage rate
presented as a decimal; n is the number of deposits (= the number of years, in this case).
Under the given conditions, P = 2000; r = 0.05; n = 20. So, according to the formula (1), you get at the end of the 20-th year
FV =  = $66,131.91.
Note that you deposit only 20*$2000 = $40,000.00.
The rest, 66,131.91 - 40,000.00 = 26,131.91 is the interest, which the account earns/accumulates in 20 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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