Question

The bank pays a 3% yearly interest rate and you will put $5,000 in the bank account at the end of each year for 15 years. After the last deposit, how much will be in your bank account?

Alternatively, you make a single payment today rather than funding this amount by making yearly payments, what will be the amount of that payment? What is the present value of your annuity at time zero? Are these two amounts the same?

Answer 1

A/c balance after 15 years Px[(1+r)^n-1)=r Here, 3%) 15 11 A Interest rate per annum B Number of years C Number of payments per per annum A: Interest rate per period (r) BxC Number of periods (n) Payment per period (P) 3% 15 / 5,000 A/c balance after 15 years $ 92,994.57| 5000/((1+3%)^15-1):3%

Single payment FVx(1=(1+r)^n) Here, 3% 15 A Rate per annum B Number of years c Number of compoundings per per annum A:C Rate per period (r) BxC Number of periods (n) Future value (FV) 3% 15 92,994.57 Single payment $ 59,689.68 92994.57x(1=(1+3%)^15)

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