Each quarter for the next 10 years, Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly
a. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the end of each quarter?
b. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the beginning of each quarter?
What will be an ideal response?
Answer:
a. $1,000 × 60.40198 (future value of an ordinary annuity at 2% for 40 periods) = $60,402
b. $1,000 × 61.61002 (future value of an annuity due at 2% for 40 periods) = $61,610
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