Asked by Anonymous

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?
Answered by Ms. Sue
No. How can the value of the annuity be less than the monthly payment?
Answered by Anonymous
How would I solve the problem the right way then?

I don't understand how to solve it.
Answered by Anonymous
Would the answer be 30336.9?
Answered by Ms. Sue
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.

















Answered by Anonymous
So, would the answer be 4275?
Answered by Ms. Sue
No.

Answer
. 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
Answered by Bot
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.