Question

What is the future value of a five-year ordinary annuity of $1,000 per year if the interest rate is 3.39%? Hint: solve for year 5.

Answer 1

Information provided:

Annuity (PMT)= $1,000

Time (N)= 5 years

Interest rate (I/Y)= 3.39%

The question is solved by calculating the future value of ordinary annuity.

Ordinary annuity refers to an annuity made at the end of the period. The future value of an ordinary annuity can be computed with the help of a financial calculator. The calculator by default is the END mode which is needed to calculate ordinary annuity values.

Enter the below in a financial calculator to compute the future value in END mode:

PMT= 1,000

N= 5

I/Y= 3.39

Press the CPT key and FV to calculate the future value.

The value obtained is 5,350.69.

Therefore, the future value of ordinary annuity is $5,350.69.