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You are earning an average of $47,400 and will retire in 10 years. If you put 20% of your gross average income in an ordinary annuity compounded at 7% annually, what will be the value of the annuity when you retire?

Answer: the value of the annuity when you retire is $130919

Step-by-step explanation:

We would apply the future value which is expressed as

FV = C * [{ (1 + r) ^n - 1}/r]

Where

C represents the yearly payments.

FV represents the amount of money

in your account at the end of 10 years.

r represents the annual rate.

n represents number of years or period.

From the information given,

r = 7% = 7/100 = 0.07

C = 20/100 * 47400 = $9480

n = 10 years

Therefore,

FV = 9480 * [{ (1 + 0.07) ^10 - 1}/0.07]

FV = 9480 * [{1.967 - 1}/0.07]

FV = 9480 * 13.81

FV = $130919