Ozzie Foster deposits $2,000 at the end of each year (ordinary annuity) into an Individual Retirement Account at Bishop Bank. Th

Question

2 years ago

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Ozzie Foster deposits $2,000 at the end of each year (ordinary annuity) into an Individual Retirement Account at Bishop Bank. Th

e account pays 7% compounded annually. a) How much will be in the account in 25 years? b) If Ozzie had deposited the $2,000 at the beginning of each year (annuity due), how much would be in the account in 25 years?

Mathematics

1 answer:

myrzilka [38] · Answer 1 · 2023-05-17T19:34:24+03:00

The ordinary annuity and annuity due as required in the task content are; $126,498.08 and $135, 431.43 respectively.

<h3>What is the annuity due?</h3>

a) The amount which would be in the account in 25 years can be evaluated by means of the annuity factor obtained from the table under column 7% and row 25 years and hence, the value in 25 years would be; $2,000 × 63.24904

= $126,498.08.

b) For the annuity due case; the future value is;

= (1+0.07) × $2000((1+0.07)^(25) - 1)/0.07

= (1.07) × $2000(5.43-1)/0.07

= $135, 431.43.