Question: In the following ordinary annuity, the interest is compounded with eac

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Question: In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period.
An individual retirement account, or IRA, earns tax-deferred interest and allows the owner to invest up to $5000 each year. Joe and Jill both will make IRA deposits for 30 years (from age 35 to 65) into stock mutual funds yielding 9.2%. Joe deposits $5000 once each year, while Jill has $96.15 (which is 5000/52) withheld from her weekly paycheck and deposited automatically. How much will each have at age 65? (Round your answer to the nearest cent.)

Jill $ _________

Question: In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period. You and your new spouse each bring home $1400 each month after taxes and other payroll deductions. By living frugally, you intend to live on just one paycheck and save the other in a mutual fund yielding 7.83% compounded monthly. How long will it take to have enough for a 20% down payment on a $175,000 condo in the city? (Round your answer to two decimal places.)_______ yr

Joe      $ _________     

Jill $ _________

Question: In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period. You and your new spouse each bring home $1400 each month after taxes and other payroll deductions. By living frugally, you intend to live on just one paycheck and save the other in a mutual fund yielding 7.83% compounded monthly. How long will it take to have enough for a 20% down payment on a $175,000 condo in the city? (Round your answer to two decimal places.)_______ yr

Explanation / Answer

In the first example, we need to divide yield by 52 weeks and multiple no. of years by 52 weeks in order calculate N and I/Y for Jill. Then we use FV(I/Y, N, PMT) to calculate the amount each one will have after 30 years

In the second case, we need to have 20% of 175,000 = $35,000 for down payment on a condo.

Annual yield is 7.83% => Monthly yield = 7.83%/12 = 0.65%

To calculate no. of periods (months in our case) use nper formula in excel = NPER(I/Y, -PMT, PV=0, FV). They need to do it for 23.23 months or 1.94 years

Joe Jill PMT 5,000 96.15 N 30 1560 I/Y 9.20% 0.18% FV $707,488 $802,216

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