is trying to decide what to do with her savings in a retirement account into which she has been paying over the past several decades. Her
options are:
A) Leave the retirement fund invested until age 67, when she expects to retire fully; or
B) Receive an annuity over the next 12 years until her retirement. The annuity, paid out at $3,000 per month, will exhaust the savings in this
particular account.
Assumptions:
• The amount in the retirement account is $300,000.
• The monthly annuity payment she will receive is $3,000 (monthly for 12 years)
• The annual interest rate on either investment is .07
• Compound monthly.
Work through the following questions to help Gracelyn make this decision and round both answers to the nearest dollar:
Calculate the future value of retaining funds in the retirement account with monthly compounding.
Answer: $ =
2. Calculate the future value of the annuity.
Answer: $ =