Question

Find the future value of an ordinary annuity if payments are made in the amount R and interest is compounded as given. Then determine how much of this value is from contributions and how much is from interest. R​; ​700 6.35% interest compounded semiannually for 9 years.

Answer 1

Effective rate of interest = (1+r/n)^n -1
n= number of periods
r = interest rate
= (1+0.0635/2) ^2 - 1
=6.450806%
Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $700[ (1+0.06450806)^9 -1] /0.06450806
= $700[ (1.06450806)^9 -1] /0.06450806
= $700[ (1.7553 -1] /0.06450806]
= $8,195.56
It is assumed that payments are made annually. If answer is wrong let me know.