Question

“How do you find the future value of an ordinary annuity using the simple interest formula...

“How do you find the future value of an ordinary annuity using the simple interest formula method?”

Homework Answers

Answer #1

Future value of an ordinary annuity can be calculate d by using the following formula

Future value of an ordinary annuity

FV = PMT [ (1 + r )n –1 ] / r

Where ;

FV = Future Value of an ordinary annuity at the end of the n’th period

PMT = The amount of annuity payment received or deposited at the end of each period

r = Interest rate for the period

n = Number of payments period

The Following is a example to understand the concept of Future Value of an Ordinary Annuity

Annual Deposit = $620 per year

Interest rate = 2.50%

Number of Period = 12 Years

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

= $620 x [{(1.025)12 – 1} / 0.025]

= $620 x [0.344888 / 0.025]

= $620 x 13.79555

= $8,553.24

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