Question

In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period.

Find the accumulated amount of the annuity. (Round your answer to the nearest cent.)

$2000 monthly at 4.9% for 20 years.

$ __________

Answer 1

The amount is computed as shown below:

Future value = Monthly payment x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 4.9% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.408333333% or 0.00408333333

n is computed as follows:

= 20 x 12 (Since the payments are on monthly basis, hence multiplied by 12)

= 240

So, the amount will be as follows:

= $ 2000 x [ [ (1 + 0.00408333333)²⁴⁰ - 1 ] / 0.00408333333 ]

= $ 812,642.39 Approximately

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