Find the value of an investment after 4 years for $10,000 Ordinary Annuity at 8% semiannually...

Question

Find the value of an investment after 4 years for $10,000 Ordinary Annuity at 8% semiannually.

a.    Show the breakdown of the value of the investment for each year.

b.    Also show the value of the investment after 4 years using the Ordinary Annuity table (future value of $1.00 Ordinary Annuity table).

Answer 1

Hi Jen!

Its semiannual compounding, so we do :

% / 2 -------> 8%/2 = 4%

time x 2 ---------> 4 years x 2 = 8 years

Since we have to use annuity table we have to look in the table (future value of $1.00 Ordinary Annuity table) for 8 years @ 4%.

you''ll find 9.3851. This 9.3851 is called annuity factor.

Now we just we have to times our amount with annuity factor.

that is, $10,000 x 9.3851

$93851 is our investment value after 4 years.

Hope I made it easy :)