John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal? Will the annual saving amount be different, and if so, by how much, if John makes the payments at the beginning of the year?
Annuities are series of fixed payments over a fixed time period. There are two basic types of annuities: ordinary annuities and annuities due. Ordinary annuity is the type of annuity where the payments are required at the end of the period while annuity due requires payment at the beginning of the period.
Answer and Explanation: 1
- John should invest $ 4,143.66 at the end of each year.
- John should invest $ 3,699.69 at the beginning of each year.
Since the first problem asks for...
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fromChapter 9 / Lesson 6
Annuities are fixed amounts of money paid out on a regular basis. Learn about the definition, types, and benefits of annuities. Explore investment options, and understand the disadvantages of annuities.