Question

Wynn is 24 years old and has decided to reduce the number of cups of coffee he buys by 2 cups per day. One cup of coffee typically costs $2.50. Assuming 30 days in a month, if he chooses to invest this money at the end of every 6 months into an investment paying 5.50% compounded semi-annually, how much will he have when he turns 69? Answers 1. Euphemia The total amount he would have at 69 is$343,347.81.

### What is the total amount saved?

The formula that can be used to determine the future value of the deferred annuity is:
Future value = annuity factor x monthly deposit
Annuity factor = {[(1+r)^n] – 1} / r
Where:
• r = interest rate = 5.5 /2 = 2.75%
• n = number of payments = 2 x (69 – 24) = 90
Amount he would save every 6 months:
• amount saved per day = $2.50 x 2 =$5
• Amount saved per month : $5 x 30 =$150
• Amount saved every 6 months = $150 x 6 =$900
Future value : 900 x {[(1.0275^90) – 1] / 0.275}= \$343,347.81