Homework Answers
Balance at the end of 40 years = FV of $1000 + FV of Annuity of $1825
FV of $1000 = PV*[(1+Interest Rate)^Number of Periods] = 1000*[(1+0.08)^40] = $21724.52
FV of Annuity = P*[{(1+i)^n}-1]/i
Where, P = Annuity = 1825, i = Interest Rate = 0.04, n = Number of Periods = 40
Therefore, FV = 1825*[{(1+0.08)^40}-1]/0.08 = 1825*20.72452/0.08 = $472778.1125
Balance at the end of 40 years = 21724.52 + 472778.1125 = $494502.6325 is equivalent to $494502.67
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