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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Future Values of an Annuity

On December 31, 2020, Natalie Livingston signs a contract to make annual deposits of $4,200 in an investment account that earns 10%. The first deposit is made on December 31,2020.

Required:

Note: Round answers to two decimal places.

1. Calculate what the balance in this investment account will be just after the seventh deposit has been made if interest is compounded annually.

2. Determine how much interest will have been earned on this investment account just after the seventh deposit has been made if interest is compounded annually.

To determine

(a)

Introduction:

Compound interest considers the time value of money. Future value of annuity means the value of annual cash flows along with the compound interest on a specific date.

To calculate:

The investment account balance after the seventh deposit.

Explanation

Annual Cash Flow (f) = $4,200

Compounded Annually,

Interest Rate = 10%

No. of periods = 7

FV = Future Value

To determine

(b)

Introduction:

Compound interest considers the time value of money. Future value of annuity means the value of annual cash flows along with the compound interest on a specific date.

To calculate:

Interest earned after the seventh deposit.

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