Solve the following problem using the table(s). Please round intermediate calcul

Question

Solve the following problem using the table(s). Please round intermediate calculations to 4 decimal places as done in class. After all the time value of money discussions in your Principles of Finance class, you decided to experiment with the magic of compound interest. After all, if Einstein thought it is the 8th Wonder of the World, why should you doubt him. Beginning today, you will be investing $5,000 peryear for the next 40 years in an account earning 8%. How much will you have 40 years later?

Explanation / Answer

using formula

Using Financial calculator

Since you will be investing today we have to change our calculator setting to begin mode

Press 2nd +PMT then 2nd+ENTER

This will change your calculator to Begin mode

Using financial calculator

PMT=5000 [Press Enter]

N=40 [Press Enter]

I/Y=8 [Press Enter]

PV=0 [Press Enter]

Press CPT and FV

FV= 1,398,905.2010

Future value of annuity= (1+ annual rate)×annual payment[(1+annual rate)^n -1/annual rate] Future value of annuity= 1.08×5000[1.08^40-1/.08] Future value of annuity= 1.08×5000[21.72452-1/.08] Future value of annuity= 1.08×5000[20.72452/.08] Future value of annuity= 1.08×5000×259.0565 Future value of annuity= 1,398,905.2010

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