Question

What is the future value in 19 years of an ordinary annuity cash flow of $855 every quarter of a year at the end of the period, at an annual interest rate of 7.85 percent per year, compounded quarterly?

Answer 1

Solution:
	The future value if the payments are an ordinary annuity and compounded quarterly		$147,256.94
Working Notes:
	Future value of annuity = P x ((1+i)^n - 1)/i
	P= Quarterly cash flow =$855
	i=Interest rate at which it compounded per period= 7.85%/4 =1.9625% =0.019625
	n= no. Of payments in a year x no. Of years = 4 x 19 =76
	Future value of ordinary annuity   = P x ((1+i)^n - 1)/i
	Future value of ordinary annuity = 855 x ((1+0.019625)^76 - 1)/0.019625
		=$147,256.9356
		=$147,256.94
Please feel free to ask if anything about above solution in comment section of the question.

answered by: anonymous