Question

Janice plans to save $80 a month, starting today, for 20 years. Kate plans to save $80 a month for 20 years, starting one month from today. Both Janice and Kate expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Janice will have approximately _____ more than Kate.

Answer 1

Answer:

159 extradollars

Explanation:Present value of Kate investment after 20 years

$C \times \frac{(1+r)^{time} -1 }{rate} = PV$

C 80.00

time 240 (20 years x 12 months)

rate 0.004583333

$80 \times \frac{(1+0.004583)^{240}-1}{0.004583} = PV$

FV $34,850.1916

If saved at the beginning (annuity due

$C \times \frac{(1+r)^{time} -1 }{rate}(1+r) = PV$

C 80.00

time 240

rate 0.004583333

$80 \times \frac{(1+0.004583)^{240}-1}{0.004583}(1+r) = PV$

PV $35,009.9217

35,009 - 34850 = 159 extradollars