1. Which of the following comes closest to the future value of a 10-year annuity

Question

1. Which of the following comes closest to the future value of a 10-year annuity of $5,630 that begins in one year and is invested to earn an interest rate of 12.25%?

$ 56,300

$ 100,000

$ 63,197

$ 51,999

$ 55,553

2. John begins a retirement program by investing monthly amounts of $185 from his pay and placing it in an account guaranteed to earn 6% interest. Deposits will be taken from his check at the end of each month, beginning in one month for 42 consecutive years, the time when John expects to retire. Which of the following amounts comes closest to the balance in the account at the time of his retirement?

$436,000

$413,000

$390,000

$420,000

$340,000

a.

$ 56,300

b.

$ 100,000

c.

$ 63,197

d.

$ 51,999

e.

$ 55,553

Explanation / Answer

Correct option is (b) $100,000

Future value of annuity P×[(1+r)^n-1]÷r Here, 1 Interest rate per annum 12.25% 2 Number of years                                                             10 3 Number of compoundings per per annum                                                               1 1÷3 Interest rate per period ( r) 12.25% 2×3 Number of periods (n) 10 Payment per period (P) $                                             5,630.00 Future value of annuity $                                              100,001 5630*((1+12.25%)^10-1)/12.25%

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