Question

Assume that you just received an ordinary annuity with 9 annual payments of $1,000 each. You plan to invest the payments at a 7% annual interest rate. How much would you have, in total, at the end of the 8th year?

Group of answer choices

$10,713.34

$10,503.27

$10,095.42

$11,977.99

$10,297.33

Assume that you just received an ordinary annuity with 6 annual payments of $1,000 each. You plan to invest the payments at a 6% annual interest rate. What will the value of the first payment be at the end of the 5th year?

Group of answer choices

$1,152.23

$1,338.23

$1,224.61

$1,300.35

$1,187.87

Answer 1

1)

Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $1000[ (1+0.07)^9 -1] /0.07
= $1000[ (1.07)^9 -1] /0.07
= $1000[ (1.8385 -1] /0.07]
= $11,977.99

2)

FV= PV*(1+r)^n

Where,

FV= Future Value

PV = Present Value

r = Interest rate

n= periods in number

= $1000*( 1+0.06)^5

=1000*1.33823

= $1338.23