Sally Medavoy will invest 6370 a year for 19 years in a fund

Sally Medavoy will invest $6,370 a year for 19 years in a fund that will earn 11% annual interest If the first payment into the fund occurs today, what amount will be in the fund in 19 years? If the first payment occurs at year-end, what amount will be in the fund in 19 years?

First payment today $

First payment at year-end $

Solution

The first is an annuity due (payment at the start of the year.

FV = Pmt x (1 + i) x ( (1 + i)^n - 1 ) / i

Variables used in the formula
FV = Future Value
Pmt = Periodic payment
i = Discount rate
n = Number of periods

FV = 6370 x (1 + 11%) x ( (1 + 11%)^19 - 1 ) / 11%
FV = 402,602.04


The second is an annuity (payment at the end of the year)
FV = Pmt x ( (1 + i)^n - 1 ) / i

FV = Pmt x ( (1 + i)^n - 1 ) / i
FV = 6370 x ((1+11%)^19-1)/11%
Fv = 362,704.54