what is the future value in 27 years of an ordinary annuity cash flow of $704 every quarter of a year at the end of the period, at an annual interest rate of 8

Finance Jun 06, 2021

what is the future value in 27 years of an ordinary annuity cash flow of $704 every quarter of a year at the end of the period, at an annual interest rate of 8.89% per year, compounded quarterly?

Expert Solution

Computation of Future Value using FV Function in Excel:

=fv(rate,nper,-pmt,pv)

Here,

FV = Future Value = ?

Rate = 8.89%/4 = 2.2225%

Nper = 27 years * 4 quarters = 108 quarters

PMT = $704 per quarter

PV = 0

Substituting the values in formula:

=fv(2.2225%,108,-704,0)

FV or Future Value = $308,538.35

We can calculate it using Future Value of Ordinary Annuity Formula:

Future Value = C*((1+i)^n - 1)/i)

= $704*((1+8.89%/4)^(27*4) - 1)/(8.89%/4))

= $704*438.265

Future Value = $308,538.35

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