Question

2] Assume instead an annuity of $2,500 (which means you will invest $2,500 per year which will also be compounded at 5% interest annually. Determine how much you will have accumulated in the account at the end of (future value): (Note this problem is for an annuity - and this variable is the "payment".) a) 5 years b) 10 years

Answer 1

a

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 2500*(((1+ 5/100)^5-1)/(5/100))

FV = 13814.08

b

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 2500*(((1+ 5/100)^10-1)/(5/100))

FV = 31444.73