5 SolveAnnuityProblems
MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
Solve.
1)
ackdecidedtoput$600intoanIRAaccountevery3monthsatarateof6%compoundedquarterly.Finda
recursiveformulathatrepresentshisbalanceattheendofeachquarter.Howlongwillitbebeforethe
valueoftheaccountis$100,000?Whatwillbethebalancein30yearswhenJackretires?
A) B0=600Bn=(1+0.06
4)B(n–1)+600;21years;$202,355
B) B0=600Bn=(1+0.06
3)B(n–1)+600;18years;$151,860
C) B0=600Bn=(1+0.6
4)B(n–1)+600;7years;$4million
D) B0=600Bn=(1+0.06
12 )B(n–1)+600;10years;$6.8million
2) Afterworkingfor25yearsyouwouldliketohave$800,000 inanannuityforearlyretirement.Ifthe
annualinterestrateis7.5%,compoundedmonthly,whatwillyourmonthlydepositneedtobe?
A) $911.93 B) $2666.67 C) $3088.48 D) $1146.98
3) Tosaveforretirement,youdecidetodeposit$2500 intoanIRAattheendofeachyearforthenext35
years.Iftheinterestrateis8%peryearcompoundedannually,findthevalueoftheIRAafter35years.
(Roundtothenearestdollar.)
A) $430,792 B) $34,463 C) $396,567 D) $11,982,075
4) Lookingaheadtoretirement,yousignupforautomaticsavingsinafixed–income401Kplanthatpays5%
peryearcompoundedannually.Youplantoinvest$3500attheendofeachyearforthenext15years.
Howmuchwillyouraccounthaveinitattheendof15years?
A) $75,525 B) $77,295 C) $73,982 D) $76,823
5) Lonniedeposits$200eachmonthintoanaccountpayingannualinterestof7%compoundedmonthly.
Howmuchwillhisaccounthaveinitattheendof6years?
A) $17,832 B) $1431 C) $17,678 D) $17,961
6) Laurainvests$250eachquarterinafixed–interestmutualfundpayingannualinterestof5%compounded
quarterly.Howmuchwillheraccounthaveinitattheendof8years?
A) $9763 B) $2387 C) $29,281 D) $9892
SHORTANSWER.Writethewordorphrasethatbestcompleteseachstatementoranswersthequestion.
7) Youdeposit$150each6monthsintoanannuitywithanannualinterestrateof13.5%
compounded
semiannually.
a) Whatisthebalanceafter20years?
b) Whatisthebalanceafter40years?
8) Christinecontributes$100eachmonthtoher401(k).Tothenearestdollar,whatwillbethevalueof
Christineʹs401(k)in20yearsiftheperannumrateofreturnisassumedtobe10%compoundedmonthly.
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