Question

If you start making $105 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 12.75 percent APR? (Do not round intermediate calculations and round your final answer to 2 decimal places.) What is the present value of this annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Information provided:

Monthly annuity= $105

Time= 4 years*12= 48 months

Interest rate= 12.75%/12= 1.0625% per month

The future value is calculated by entering the below in a financial calculator:

PMT= 105

N= 48

I/Y= 1.0625

Press the CPT key and FV to compute the future value.

The value obtained is 6,530.43.

Therefore, the future value is $6,530.43.

The present value of the annuity is calculated by entering the below in a financial calculator:

PMT= 105

N= 48

I/Y= 1.0625

FV= 6,530.43

Press the CPT key and PV to compute the future value.

The value obtained is 7,864.12

Therefore, the present value is $7,864.12

In case of any query, kindly comment on the solution.