After paying off a car loan or credit card, don't remove this amount from your budget. Instead, invest in your future by applying some of it to your retirement account.

How much would $550 invested at the end of each quarter be worth in 9 years at 4% interest? (Please use the provided table.)

Note: Do not round intermediate calculations. Round your answer to the nearest cent.

Amount after 9 years:



Answer :

To determine how much [tex]$550 invested at the end of each quarter would be worth in 9 years at an annual interest rate of 4%, we can use the formula for the future value of an ordinary annuity. The formula is: \[ FV = PMT \times \left( \frac{(1 + r)^n - 1}{r} \right) \] where: - \( FV \) is the future value of the annuity, - \( PMT \) is the payment amount per period, - \( r \) is the interest rate per period, - \( n \) is the total number of periods. Now, let's break down the problem step by step: 1. Identify the payment amount (\( PMT \)): The payment amount each period is $[/tex]550.

2. Determine the total number of periods ([tex]\( n \)[/tex]):
Since payments are made quarterly (every 3 months) and the total investment duration is 9 years, we first find the number of quarters in 9 years:
[tex]\[ n = 9 \text{ years} \times 4 \text{ quarters/year} = 36 \text{ quarters} \][/tex]

3. Compute the interest rate per period ([tex]\( r \)[/tex]):
The annual interest rate is 4%. Since the interest is compounded quarterly, we need to convert this annual rate into a quarterly rate:
[tex]\[ r = \frac{4\%}{4} = 1\% \][/tex]
In decimal form, this is:
[tex]\[ r = \frac{4}{100 \times 4} = 0.01 = 0.04 / 4 \][/tex]

4. Substitute the known values into the annuity formula:
[tex]\[ FV = 550 \times \left( \frac{(1 + 0.01)^{36} - 1}{0.01} \right) \][/tex]

5. Calculate the future value ([tex]\( FV \)[/tex]) (Show the critical intermediate steps without performing actual calculations):

[tex]\[ FV = 550 \times \left( \frac{(1 + 0.01)^{36} - 1}{0.01} \right) \][/tex]

1. Calculate [tex]\( (1 + 0.01)^{36} \)[/tex]:
[tex]\[ 1.01^{36} \][/tex]

2. Subtract 1 from the result:
[tex]\[ \left( \frac{1.01^{36} - 1}{0.01} \right) \][/tex]

3. Divide by the interest rate per period ([tex]\( 0.01 \)[/tex]):
[tex]\[ \frac{1.01^{36} - 1}{0.01} \][/tex]

4. Multiply by the payment amount ([tex]\( 550 \)[/tex]):
[tex]\[ 550 \times \left(\frac{1.01^{36} - 1}{0.01}\right) \][/tex]

Performing these calculations, the future value of the annuity, rounded to the nearest cent, is:

[tex]\[ FV \approx \$23,692.28 \][/tex]

Therefore, investing [tex]$550 at the end of each quarter for 9 years at an annual interest rate of 4% will yield approximately $[/tex]23,692.28 after 9 years.