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QuizMultiple Choice

Annuities

Question 1 • FT GMS AMDM B IC – 72

You put $200 at the end of each month in an investment plan that pays an APR of 4.5%. How much will you have after 18 years? Compare this amount to the total deposits made over the time period.

Answer
A
$66,370.35; $43,200
B
$66,295.23; $43,000
C
$66,380.12; $43,000
D
$66,373.60; $43,200

Explanation

Because deposits are made at the end of each month, use the future value formula for an ordinary annuity: $200 × [((1 + 0.045/12)^216 − 1)/(0.045/12)] ≈ $66,373.60. There are 18 × 12 = 216 deposits, so the total amount deposited is 216 × $200 = $43,200. Choice D gives both amounts.

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