Question

Question 7

What is the future value 10 years from now, of an annuity that pays a constant payment of $900 at the beginning of each year for 10 years? Assume an opportunity cost of capital of 5.00%.

A. $12,647
B. $11,886
C. $11,034
D. $7,297
E. I choose not to answer

Answer 1

Future value of Annuity due- It is used to calculate the ending value of a series of payment when the first payment is received immediately.

Formula: FV of Annuity due = (1+r) * P [(1+r)ⁿ -1 ] / r

Where P = Present value, r = rate of interest (Cost of capital), n = number of years.

Given: P = $900, r = 10%, n = 5 years.

Putting all the values in the formula, we get:

FV of annuity due = (1+.05) * 900 [(1+.05)¹⁰-1] / .05

Fv of annuity due = $11886.11

Option "B" is correct.