If you plan to save $9,800 every year for retirement for 30 years. Assuming that you earn a 9%...
Question:
If you plan to save $9,800 every year for retirement for 30 years. Assuming that you earn a 9% return on your investment, compounded annually, how much money will you have when you retire?
A) $100,682
B) $320,460
C) $313,747
D) $1,335,814
E) $130,023
Future Value of Annuity
An annuity is a series of periodic payments in a deposit that earns a certain amount of interest. The objective of annuity is to accumulate a lump-sum for a future date. This is generally used for retirement savings or for planning education funding.
Answer and Explanation: 1
Given -
- Annual Saving = $9,800
- Time = 30 years
- Rate = 9% = 0.09
The formula for calculating future value of annuity is as follows -
- Future Value of Annuity = P * { ( 1 + r ) ^ n - 1 / r }
Therefore,
- Future Value of Annuity = 9800 * { ( 1 + 0.09 ) ^ 30 - 1 / 0.09 }
Or,
- Future Value of Annuity = 9800 * 136.3075
Or,
- Future Value of Annuity = $1,335,814
Therefore, the correct answer is -
- Option (D) $1,335,814
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How to Find the Value of an Annuity
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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.
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