Use the formula, Excel or an online Annuity Calculator (see Course Resources for suggested ones) as appropriate to help answer the following questions. Be sure to work through the examples in the Lesson first.
1. Suppose Mary deposits $200 at the end of each month for 30 years into an account that pays 5% interest compounded monthly.
a. How much total money will she have in the account at the end?
b. How much total money did Mary actually deposit?
c. How much total interest did the account earn over that period?
d. Suppose instead of making monthly deposits, Mary decides to deposit a “lump sum” into the account. How much must she deposit? What is this value also called?
2. Suppose a retiree wants to buy an ordinary annuity that pays her $2,000 per month for 20 years. If the annuity earns interest at 3.5% interest compounded monthly, what is the present value of this annuity?