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Ozzie Foster deposits $2,000 at the end of each year (ordinary annuity) into an Individual Retirement Account at Bishop Bank. The account pays 7% compounded annually. a) How much will be in the account in 25 years? b) If Ozzie had deposited the $2,000 at the beginning of each year (annuity due), how much would be in the account in 25 years?

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adioabiola

The ordinary annuity and annuity due as required in the task content are; $126,498.08 and $135, 431.43 respectively.

What is the annuity due?

a) The amount which would be in the account in 25 years can be evaluated by means of the annuity factor obtained from the table under column 7% and row 25 years and hence, the value in 25 years would be; $2,000 × 63.24904

= $126,498.08.

b) For the annuity due case; the future value is;

= (1+0.07) × $2000((1+0.07)^(25) - 1)/0.07

= (1.07) × $2000(5.43-1)/0.07

= $135, 431.43.

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