Question

Cindy Medavoy will invest $7,990 a year for 19 years in a fund that will earn 10% annual interest. Click here to view factor tables If the first payment into the fund occurs today, what amount will be in the fund in 19 years? If the first payment occurs at year-end, what amount will be in the fund in 19 years? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.)

Answer 1

Answer:

The correct answer for future value if first payment occur today is $449,645.24 and if first payment occur at the end of year is $408,761.13.

Explanation:

According to the scenario, the given data are as follows:

Payment (pmt) = $7,990

Rate of interest (r) = 10%

Time (n) = 19 years

So, we can calculate the future value by using following formula:

Future Value ( if payment occurs today) :

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

By putting the value:

= $7,990 ((( 1+ 0.10)^19   -1) ÷ .10) × ( 1 + 0.10)

= $7,990 ( 51.16) × ( 1.10)

= $449,645.24

Future Value ( if payment occurs at the end of year):

FV = Pmt x ((1+r)^n   -1)) ÷ r)

= $7,990 ((1 + 0.10)^19  -1) ÷ 0.10)

= $7,990 × 51.16

= $408,761.13