Assume you receive an 8 year annuity payments to you of $600 at the end of the y

Question

Assume you receive an 8 year annuity payments to you of $600 at the end of the year, with the first payment being received at the end of Year 1 and the last payment being received at the end of Year 8. You invest each payment in an account that pays 6 percent compounded annually. When the annuity payments stop at the end of Year 8, How much will you have in the account at the end of Year 8(rounded to the nearest dollar)?

B. If you do not withdraw any money from the account at that time, and retain that total amount in the account for an additional 10 years, and the account will continue to earn 6% ( this 6% for the entire 18 year period). Please calculate the value in your account at the end of Year 18 (rounded to the nearest dollar).

Explanation / Answer

A)Future value = Annual payment * FVAF@6%,8

                             = 600 * 9.89747

                            = $ 5938.482

B)Value at end of 18 years = Value at year 8 *FVF@6%, 10

                                                = 5938.482 * 1.79085

                                                 = 10634.93

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