Lisa makes an annuity contribution of USD 2000 for 13 years. Thereon this amount will be compounded for 32 years for the period which she is not contributing at an effective rate of 7 percent.
Calculating the annuity
Future value of the annuity = contribution amount*[(1 + interest rate)^ n -1]/ interest rate Where; contribution amount is 2,000, interest rate is seven percent and a term of 13 years. FV= 2000 [(1.07)^13-1]/0.07 FV=40, 281.29
The future value of the annuity is calculated to the age of 33 years when she stopped making contributions. This amount is the compounded to the age of 65 years. Compound interest = amount (1+interest) ^ n