Question
Consider an annuity with equal monthly payments of $300 for 5 years, with the first payment...
Consider an annuity with equal monthly payments of $300 for 5 years, with the first payment starting 7 months from now. If the effective annual rate for the first two years (starting today) is 5% and the nominal rate in subsequent years is 6% per annum compounded semi-annually, calculate the future value of this annuity immediately after the last monthly payment.
Homework Answers
Answer #1
The future value of the annuity is calculated using the following equation
The payments are occuring monthly and the interest is compounded semi-annually, hence the payment frequency and the compounding frequency must be equalized.
The monthly interest rate for the first 2 years is calculated as follows .
The monthly interest rate for the remaining years is calculated as follows
The futiure value of the payments is calculated as follows
Future value of the annuity
after the last payment 
$17372
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