Question

James has set up an ordinary annuity to save for his retirement in 19 years. If his monthly payments are $250 and the annuity has an annual interest rate of 7.5%, what will be the value of the annuity when he retires?

Would the answer be 171.11?

Answer 1

No. How can the value of the annuity be less than the monthly payment?

Answer 2

How would I solve the problem the right way then?

I don't understand how to solve it.

Answer 3

Would the answer be 30336.9?

Answer 4

No.

19 * 12 * 250 = $57,000

That's the amount he's invested. Now multiply that by 1.075 (interest rate) to find the amount of the annuity.

Answer 5

So, would the answer be 4275?

Answer 6

No.

Answer 7

. James has set up an annuity to save for his
retirement in 18 years. His monthly
payments are $250, and the annuity has an
annual interest rate of 8.5% compounded
monthly. When he retires, what will be the
future value of the annuity?
A. $126,823.65
B. $4,781.45
C. $1,148.33
D. $58,327.72

Answer 8

We can begin by calculating the number of monthly payments he will make over the 18 years:

18 years x 12 months/year = 216 monthly payments

Next, we can use the formula for the future value of an annuity:

FV = Pmt x (((1 + r/n)^(n x t)) -1) / (r/n)

Where:

FV = future value
Pmt = monthly payment
r = annual interest rate
n = number of compounding periods per year
t = number of years

Plugging in the given values, we get:

FV = $250 x (((1 + 0.085/12)^(12 x 18/12)) - 1) / (0.085/12)
FV = $250 x (1.085^(12)) x (1 - 1/1.085^(12))/0.085
FV = $250 x 5.4107 x 72.9547
FV = $126,823.65

Therefore, the future value of the annuity when James retires will be $126,823.65, option A.