Question

Jesse invested $200 at the beginning of each month for the last 22 years and earned 7 percent interest, compounded monthly. Carla invested $200 at the end of each month for the past 22 years and earned 7 percent interest, compounded monthly. Today, Jesse has ______ than Carla.

Answer 1

Answer:

$728.67

Explanation:

Jesse's case is an annuity due while Carla's is an ordinary annuity.

In annuity due, recurring cashflows occur at the beginning of every period(month in this case) while for ordinary annuity, they occur at the end.

Jesse(annuity due)

Using a financial calculator on BEG mode, input the following;

PMT = -200

N = 22*12 = 264 months

I (monthly rate) = 7%/12 = 0.5833%

PV = 0

then compute future value ; CPT FV = $125,651.01

Carla (Ordinary annuity)

Using a financial calculator on END mode, input the following;

PMT = -200

N = 22*12 = 264 months

I (monthly rate) = 7%/12 = 0.5833%

PV = 0

then compute future value ; CPT FV = $124,922.34

Therefore, Jesse has ($125,651.01 -$124,922.34 = $728.67 more than Carla)