Question

To save for retirement, Jamie decides to invest in an annuity that pays 5% annual interest, compounded annually. If Jamie contributes $2,000 annually for 20 years, how much interest would she earn during the 20 years?

Answer 1

Answer:

Interest= $26,131.91

Explanation:

Giving the following information:

Annual deposit= $2,000

Number of periods= 20 years

Interest rate= 5%

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {2,000*[(1.05^20) - 1]} / 0.05

FV= $66,131.91

Now, we can determine the interest earned:

Interest= future value - total investment

Interest= 66,131.91 - 20*2,000

Interest= $26,131.91