Question

find the the vaule of the annuity and the interest round to the nearest dollar.

periodic deposit: 10,000 at the end of every three months

rate: 6.25% compounded quarterly

time: 6 years

Answer 1

Future Value of an Ordinary annuity

Here, we’ve quarterly payment (P) = $10,000 per quarter

Quarterly interest rate (r) = 1.5625% per quarter [6.25% / 4 quarters]

Number of periods (n) = 24 quarters [6 Years x 4 quarters]

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

= $10,000 x [{(1 + 0.015625)²⁴ - 1} / 0.015625]

= $10,000 x [(1.450778744 – 1) / 0.015625]

= $10,000 x [0.450778744 / 0.015625]

= $10,000 x 28.84983959

= $288,498

“Hence, the Future Value of an Ordinary annuity will be $288,498”