suppose that $2700 is set aside each year and invested in a savings account that pays 8% interest per year, componded continously, part b: in part a,suppose that an annuity will be withdrawn from savings that have been accumulated at the EOY 25.
suppose that $2700 is set aside each year and invested in a savings account that pays 8% interest per year, componded continously, part b: in part a,suppose that an annuity will be withdrawn from savings that have been accumulated at the EOY 25.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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suppose that $2700 is set aside each year and invested in a savings account that pays 8% interest per year, componded continously,
part b: in part a,suppose that an annuity will be withdrawn from savings that have been accumulated at the EOY 25. The annuity will extend from teh EOY 26 to EOY 33, what is the value of this annuity if teh interest rate and componding frquency in part a do not change
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Answer
According to the question, it is given that
Amount set aside each year ( Annuity) = $2700
Rate of interest = 8%
Rate of compounds continuously will be =
[ ( 1 + (0.08 / 365 )) ^ 365 ] -1 = 8.33%
( You can also refer compound continuously table to get 8.33% )
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