Question

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

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