Question

What is the future value of a 13%, 28-year ordinary annuity that pays $388 each year? Assume annual compounding. (round your answer to the nearest dollar)

Answer 1

FV of Annuity :

Annuity is series of cash flows that are deposited at regular intervals for specific period of time. Here deposits are made at the end of the period. FV of annuity is future value of cash flows deposited at regular intervals grown at specified int rate or Growth rate to future date.

FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$               388.00
Int Rate	13.000%
Periods	28

FV of Annuity = Cash Flow * [ [ ( 1 + r ) ^ n ] - 1 ] /r
= $ 388 * [ [ ( 1 + 0.13 ) ^ 28 ] - 1 ] / 0.13
= $ 388 * [ [ ( 1.13 ) ^ 28 ] - 1 ] / 0.13
= $ 388 * [ [30.6335] - 1 ] / 0.13
= $ 388 * [29.6335] /0.13
= $ 88444.56
FV of Annuity is $ 88444.56