Question

Find the future value of an ordinary annuity of $7,000 paid quarterly for 4 years, if the interest rate is 8%, compounded quarterly. (Round your answer to the nearest cent.)

Answer 1

Future Value of an Ordinary annuity

Here, we’ve quarterly payment (P) = $7,000 per quarter

Quarterly interest rate (r) = 2.00% per quarter [8.00% / 4 quarters]

Number of periods (n) = 16 quarters [4 Years x 4 quarters]

Therefore, Future Value of an Ordinary Annuity = P x [{(1+ r)ⁿ - 1} / r ]

= $7,000 x [{(1 + 0.02)¹⁶ - 1} / 0.02]

= $7,000 x [(1.372785705 – 1) / 0.02]

= $7,000 x [0.372785705 / 0.02]

= $7,000 x 18.63928525

= $130,475.00

“Hence, the Future Value of an Ordinary annuity will be $130,475.00 “