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Unit 7: Instructor Graded Assignment
Annuities
In this and future Instructor Graded Assignments you will be asked to use the answers you
found in the Unit 1 Assignment.
Note: For these questions you need to cite a reliable source for information, which means you
cannot use sites like Wikipedia, Ask.com, and Yahoo answers. If you do use those sites the
instructor may award 0 points for your response.
The Assignment problems must have the work shown at all times. The steps for solving the
problems must be explained. Failure to do so could result in your submission being given a 0. If
you have any questions about how much work to show, please contact your instructor.
Assignments must be submitted as a Microsoft Word document and uploaded to the Dropbox
for Unit 7. Please type all answers directly in this Assignment below the question it applies to.
All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.
Note: All interest rates are to be assumed to be yearly interest rates.
Question 1
(10 points)
1. You wish to deposit $500 per month into an account for 36 months. Assume your interest rate
is equal to the prime interest rate.
a) How much do you have (total) in the account after 36 months?
Rate: 3.25%
36Months
$500.00
0.325/12 = 0.0027083
500(1+0.0027083)^36-1/.0027083
500(37.75979083) = 18879.90
b) How much of that total is interest?
500(36) = 18000.00
18879.90 - 18000.00 = 879.90
Question 2
(10 points)
Question 3
(10 points)
3. At the age of 30 you decide to start saving money. At first you can only afford to deposit $200
per month. However, at the age of 38 you are able to deposit $300 per month. Then at the age
of 45 you raise your monthly deposit again to $500 per month. Finally at the age of 50 you get
promoted to president of the company and are able to deposit $2000 per month into the
account. Assuming your account is earning (prime interest rate + 4%) in interest, compounded
monthly, how much do you have in your account at the age of 70? Hint: Treat each time that you
change the deposit amount as a seperate annuity, and compute the future value (FV) on each
annuity seperately. Assume that each annuity earns compound interest during the time it is not
receiving deposits.
.0725/12 = .006041667%
8 years * 12 months = 96 periods
so $200 [(1.006041667)^96-1/006041667]; $200[.782924464/.006041667] = $25,917.50
$25,917.50(1.0725)^32 = $243,387.55
7 years * 12 months = 84 periods
So $300[(1.006041667)^84-1/.006041667]; $300 (.658598721/.006041667 = $32,702.83
$32,702.83(1.0725)^25=$188,155.91