Use the future value formula to find the indicated value. n=45​; i=0.03​; PMT=$ 55​; FV=?

Answer 1

This is a two step Process. We need to calculate Present Value of the payment stream and then take that Preset Value to Future Value

Payment = Present Value*r/(1-(1/(1+r))ⁿ

Or PV = (P/r)(1- (1/(1+r))ⁿ so

P/r =(55/.03)= 5500/3 (1/(1+r))ⁿ i= (1/1.03) ⁴⁵ = .2644

1-.2644 =.7356 soo PV = (5500/3)*.7356 =$1,348.53.

1 dollar earning 3% per period will be worth (1.03)⁴⁵=$3.7816 in 45 periods $1,348.53 is worth 3.7816*1348.53 = $5,099.59 in 45 periods