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24 August, 13:20

Megan invests $1,200 each year in an ira for 12 years in an account that earned 5% compounded annually. at the end if 12 years she stopped making payments to the account but continued to invest her acchnukated amount at 5% compounded annually for the next 11 years

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  1. 24 August, 13:21
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    Part A (annual payments)

    Future value (after 12 years)

    FV = A (1+R+R^2 + ... R^ (n-1))

    =AR^n / (R-1)

    =AR^n/i

    A=annual payment

    i=annual interest rate, compounded yearly

    R=1+i

    (Here A=$1200, i=0.05, R=1.05, n=12)

    Part B (initial deposit, compound interest)

    Future value (after 11 years) = FV * R^n

    Here

    FV=result from part A R=1.05

    n=11 (years)
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