You are due to receive $600 every 3 months from your parents starting 3 months from the day you were born. If the three-month interest rate is 0.2%, what is the value of these payments on your 19th birthday?
FV of annuity | ||
The formula for the future value of an ordinary annuity, as opposed to an annuity due, is as follows: | ||
P = PMT x ((((1 + r) ^ n) - 1) / r) | ||
Where: | ||
P = the future value of an annuity stream | To be computed | |
PMT = the dollar amount of each annuity payment | 600 | |
r = the effective interest rate (also known as the discount rate) | 0.20% | |
n = the number of periods in which payments will be made | 76 | (19*4) |
FV of the annuity at T19= | PMT x ((((1 + r) ^ n) - 1) / r) | |
FV of the annuity at T19= | 600* ((((1 + 0.2%) ^ 76) - 1) / 0.2%) | |
FV of the annuity at T19= | $ 49,195.06 |
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