Question

Veronica plans to make a $95 a month annuity payment to an account that earns 3% annual interest to build up her savings. How much can she save in 10 years with this plan?
A 7,122.49
B 13,275.43
C 21,846.27
D 38,960.76

Answer 1

Answer:

A. 13,275.43

Step-by-step explanation:

Given the principal as $95, annual rate as 3% and term of the annuity as10yrs/

#First we determine the effective rate per payment period

$i_{12}=0.03/12=0.0025$

# Annuity formula is given as:

$A=P[{\frac{(1+i)^n-1)}{i}}], \ i=0.0025, n=12\times10=120,p=95\\\\A=95[{\frac{(1.0025)^{120}-1)}{0.0025}}]\\\\A=13275.43$

Hence, Veronica needs to save $13,275.43