Question

What is the future value in 9 years of an ordinary annuity cash flow of $1,987 every quarter of a a year at the end of the period, at an annual interest rate of 9.56 percent per year, compounded quarterly?

Answer 1

Future Value of an Ordinary Annuity

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

Quarterly Payment (P) = $1,987

Quarterly Interest Rate (r) = 2.39% [9.56% / 4]

Number of period = 36 Years [9 Years x 4Quarters]

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

= $1,987 x [{(1 + 0.0239)³⁶ – 1} / 0.0239]

= $1,987 x [(2.340300 – 1) / 0.0239]

= $1,987 x [1.340300 / 0.0239]

= $1,987 x 56.079501

= $1,11,429.97

“Thus, future value at the end of the period = $1,11,429.97”