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Find the future value of the following ordinary annuity
Find the future value of the following ordinary annuity. Term Interest Rate Periodic Payment $1450 Payment Interval Conversion Period annually 6 months 8 years 8% The future value is $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)
Expert Solution
We can use following formula for Future value (FV) of ordinary annuity calculation (as the payments are made at the end of period)
FV = PMT * [(1+i) ^n – 1] /i
Where FV = future value of payment after 8 years =?
PMT or payment per six-month =$1450
And i= I/Y = 8% is the interest rate per annum or 4% semiannual
The time period n = 2 *8 = 16 semi-annual deposits
Therefore,
FV = $1450 * [(1+ 4%) ^16 -1]/ 4%
FV = $31,645.57
Therefore the future value after 8 years is $31,645.57
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