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You win a prize of 20 annual installments of $100,000. You spend your payments for seven years and then save for 13 years. If you can save winnings at 7% interest, how much would you have at the end of 20 years?

Respuesta :

TomShelby

Answer:

FV $2,014,064.29

Explanation:

The first seven years are spended entirely, so are not into the calculation.

Then we will calculate the future value of an annuity of 100,000 for 13 years at 7% interest rate.

The formula will be:

[tex]C \times \frac{(1+r)^{time} -1}{rate} = FV\\[/tex]

Where:

C 100,000

time   13

rate            0.07

[tex]100,000 \times \frac{(1+0.07)^{13} -1}{0.07} =FV\\[/tex]

We solve and got:

FV $2,014,064.29

This is the amount after 20 years, saving the last 13 years

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