Question

You are due to receive $600 every 3 months from your parents starting 3 months from...

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?

Homework Answers

Answer #1
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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