MAT 142 Problem set

Unit: Finance

Topic: Annuities

Directions: Solve the following problems. Please show your work, show the correct formula and explain

your reasoning.

1. Mr. Sparky puts away $250 from each monthly paycheck into an account that returns 7.89%

annual interest compounded monthly for his retirement.

a. How much will Mr. Sparky have saved up in his account if he makes these deposits for

20 years?

b. When he retires, he plans to live on the interest he earns each month. How much in

interest will he earn each month? (assume he can get the same interest rate as in part a)

1. LaDonna invested $1,200 each year in an IRA for 12 years in an account that earned 5%

compounded annually. At the end of 12 years, she stopped making payments to the account,

but continued to invest her accumulated amount at 5% compounded annually for the next 11

years.

a. What was the value of the IRA at the end of 12 years?

b. What was the value of the investment at the end of the next 11 years?

c. How much interest did she earn?