Find the amount (future value) of the ordinary annuity. (Round your answer to the nearest cent.)

Question

Find the amount (future value) of the ordinary annuity. (Round your answer to the nearest cent.)

$1200/quarter for 5 years at 4%/year compounded quarterly

$_____

Looking for a tutor that could help me with this type of math...thank you!

Answer 1

According to investopedia, "An ordinary annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time."

Three variables are present when calculating the present or future value of the ordinary annuity:

r, the interest rate per period

PMT, the period of the cash payment

n, the total number of periods

The equation to calculate the future value of an ordinary annuity is given as follows:

Future Value Of an Ordinary Annuity = PMT * ( ( ( 1 + r )ⁿ - 1 ) / r )

In this problem, PMT = $1200/quarterly, r = 4% or 0.04/year compounded quarterly , and n = 5 years. We need to convert n to quarters:

n = 5 years * 4 quarters / 1 year = 20 quarters

Plugging in:

Future Value = 1200 * ( ( 1 + 0.04)²⁰ - 1) / 0.04) = 1200 * ( (2.19112314303 - 1) / 0.04) = 1200 * 29.77807857575 = $35,733.69