MM255 Business Math and Statistical

Measures
Unit 7: Instructor Graded Assignment
Annuities
In this and future Instructor Graded Assignments you will be asked to use the answers you
found in the Unit 1 Assignment.
Note: For these questions you need to cite a reliable source for information, which means you
cannot use sites like Wikipedia, Ask.com, and Yahoo answers. If you do use those sites the
instructor may award 0 points for your response.
The Assignment problems must have the work shown at all times. The steps for solving the
problems must be explained. Failure to do so could result in your submission being given a 0. If
you have any questions about how much work to show, please contact your instructor.
Assignments must be submitted as a Microsoft Word document and uploaded to the Dropbox
for Unit 7. Please type all answers directly in this Assignment below the question it applies to.
All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.
Note: All interest rates are to be assumed to be yearly interest rates.
Question 1
(10 points)
1. You wish to deposit $500 per month into an account for 36 months. Assume your interest rate
is equal to the prime interest rate.
a) How much do you have (total) in the account after 36 months?
Rate: 3.25%
36Months
$500.00
0.325/12 = 0.0027083
500(1+0.0027083)^36-1/.0027083
500(37.75979083) = 18879.90
b) How much of that total is interest?
500(36) = 18000.00
18879.90 - 18000.00 = 879.90
Question 2
(10 points)

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2. Two people, Ella and Jane, decide to start saving for retirement. Ella decides to invest $4000
a year into an annuity at the age of 25. At the age of 35 she stops making investments and just
leaves the money there. Jane on the other hand, decides to start investing $4000 a year at the
age of 40 and invests that money for every year thereafter. Assuming both retire at 70, and that
the interest rate both get on their investments is 10% (compounded annually) who has the most
money in their account at age 70? Explain why you pick the answer you pick.
Ella $ first ten years:
35-25=10years
4000((1+0.1)^10-1)/0.1) = 63,749.70
70-35=35years
63,749.70(1+0.1)^35 = 1,791,521.92 Ella
70-40=30years
4000((1+0.1)^30-1)/0.1 = 657,976.10 Jane
It is obvious that Ella would have more money in her account than Jane would if they retire at
70.

Question 3
(10 points)
3. At the age of 30 you decide to start saving money. At first you can only afford to deposit $200
per month. However, at the age of 38 you are able to deposit $300 per month. Then at the age
of 45 you raise your monthly deposit again to $500 per month. Finally at the age of 50 you get
promoted to president of the company and are able to deposit $2000 per month into the
account. Assuming your account is earning (prime interest rate + 4%) in interest, compounded
monthly, how much do you have in your account at the age of 70? Hint: Treat each time that you
change the deposit amount as a seperate annuity, and compute the future value (FV) on each
annuity seperately. Assume that each annuity earns compound interest during the time it is not
receiving deposits.
.0725/12 = .006041667%
8 years * 12 months = 96 periods
so $200 [(1.006041667)^96-1/006041667]; $200[.782924464/.006041667] = $25,917.50
$25,917.50(1.0725)^32 = $243,387.55
7 years * 12 months = 84 periods
So $300[(1.006041667)^84-1/.006041667]; $300 (.658598721/.006041667 = $32,702.83
$32,702.83(1.0725)^25=$188,155.91

MM255 Business Math and Statistical

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5 years * 12 months = 60 periods
so $500[1.006041667)^72-1/.006041667]; $500(.542942381/.006041667) =$44,933.16
$44,933.16(1.0725)^20 = $182,185.15
20 years * 12 months = 240 periods
so $2000[(1.006041667)^240-1/.006041667], $2000(3.244556906/.006041667) =
$1,074,060.16
The final step is to add it all together, so $243,387.55 + $188,155.91 + $182,185.15 +
1,074,060.16 = $1,687,788.77 total invested by the age of 70.
Essay
(15 points)
4. It is commonly assumed that the stock market yields a 10% rate or return (on average) on
investments made in the market long term. Write an essay looking at the advantages and
disadvantages of investing in the stock market long term.
Requirements for essay
Write your essay in this document do not save it in a separate file.
You must clearly state your position with well-structured paragraphs using
proper grammar, spelling, and sentence structure.
This is not an opinion question you must offer evidence to support
your position, using properly-cited sources.
Your answer must be between -1 page in length.
You must cite and reference at least one source (book, website,
periodical) using APA format. The required website counts as one source
You must state at least one clear advantage and one clear disadvantage
in your essay. However more references are recommended.
Hint: Some major stock market events to consider are the crash of 1929,
the flash crash of 2011, the dot com era of the late 90's, the fast drop in
value in 2007-2008 then the market's climb back up in 2009 - 2012.
Research into those may help you to get started.
You may submit your Assignments to the Math Center for review. Tutors will not grade or correct
the Assignment, but they will provide guidance for improvement. Tutors will not, however, help
you find web sites for the Assignment.
Be sure to submit Assignments early enough to receive feedback and make corrections before
the Assignment due date (24 hour turn-around times Monday-Thursday and 48 hour turn-around
times on weekends are typical).

MM255 Business Math and Statistical

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Email Assignments to: kumc@kaplan.edu. Please put MM255 Assignment Review in the
subject line of the message.
From the beginning of investing in stock, its always a risk and it's never guaranteed. Its a 50 by
50 chance, it either goes up or down. The majority of people usually perfer to investing long
term over short term. It is always good to invest but long term investments does have its
disvantages and as well as advantages.
As I was researching in different articles I notice that the majority state when investing stock
its great advantage is investing long term. For example your capital gains is reflected by your
tax advantages. The gains that are with held over 1 year are then taxed at rates below your
income tax. Money is saved by less amount of transaction costs from active trading. To survive
low market periods you must invest longer terms.
Stocks are risky resource. This implies they don't have an ensured return and
frequently lose cash. In any case, the long-run pattern of money markets has been
unquestionably upward. Stocks have the most noteworthy return of any speculation resource
over the long term. As per the Federal Reserve, stocks has become by a normal of more than
10 percent a year in the course of recent years. Amid this same period, government bonds just
developed by 5 percent a year. In the event that you can stomach the business swings, you will
see the most astounding profit for your cash with the share trading system.
The drawback of numerous long term speculations is that numerous are illiquid. Others
may be changed over into money, however just with the danger of critical misfortune. Long term
ventures are along these lines not perfect for acquiring pay to meet promising new
commitments, for example, living and therapeutic costs.

MM255 Business Math and Statistical

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