What is the future value of the annuity?

Question

Jenny invests $1000 per year for 20 years in an annuity. The interest rate is 6% p.a. and interest is compounded annually. What is the future value of the annuity?

Answer 1

Because the interest is compounded, the appropriate formula for the future value of an annuity is

 

Future Value = PMT [((1 + r)ⁿ - 1) / r] = $1,000 *  [((1 +.06)²⁰ - 1) / .06] = $1,000 * 36.7855912 

 

Can you finish the calculation?

Answer 2

I=PxRxT.  Therefore, I= interest, P=principal, R=rate and T=Time.

 

$1000x0.06x20=$1200 over 20 years. 

Add $1200 interest to $1,000 principal and one would receive $2200 over the life of the investment.