Annuities (

Question

At the end of every 6 months, Parvati deposited $200.00 into a savings account that paid 3.5%/a compounded semi-annually. She made the first deposit when her son was 6 months old and the last on his 18th birthday. The money remained in the accoblunt until he turned 21. How much did Parvati's son receive?

Answer 1

You have to find the Amount of an Ordinary Annuity where

 

PV = 0

PMT = 200

N = 32

i% = 3.5 / 2 = 1.75%

 

This can be solved with a formula, a spreadsheet function or a financial calculator. The fund will grow to $8,482.44. This amount remains invested for another 3 years, or 6 6-mmoth periods. You find the amount of this single investment where

 

PV = 8,482.44

PMT = 0

N = 6

i% = 1.75%

FV = ?

 

The formula for this is FV = 8,482.44(1 + .0175)^6

 

FV = $9,412.98

 

A financial calculator is simplest, but you have to understand annuities and compound interest. Formulas require the most work.