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uppose you invest, every month, in an annuity that pays 3% interest, compounded monthly. After 25 years, you have $550,000. How much money do you earn from interest

Sagot :

Parrainidn

Answer: $180,046

Explanation:

First find the annuity that was invested monthly that yielded $550,000.

Interest rate = 3%/12 months = 0.25%

Period = 25 * 12 = 300 months

Future value of annuity = Annuity * ( ( 1 + rate) ^ no. of periods - 1) / rate

550,000 = Annuity * ( ( 1 + 0.25%)³⁰⁰ - 1 ) / 0.25%

550,000 = Annuity * 446

Annuity = 550,000 / 446

Annuity = $1,233.18

Without compounding, investing $1,233.18 per month would have yielded:

= 1,233.18 * 300 months

= $369,954

Money earned from interest is:

= 550,000 - 369,954

= $180,046

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