How much will be accumulated in a fund, earning 6% yearly interest, at the end o
ID: 2682052 • Letter: H
Question
How much will be accumulated in a fund, earning 6% yearly interest, at the end of 4 years if 700$ is deposited at the beginning of each year for the 4 years?
our prof is suggesting we use the equasion F(future)= A*(((1+i)^n-1)-1) / i
where A =750 and i = .06 and n(compound period)=4 however looking at this equasion if n=1 then the equasion is now F=A and if you have $750 in the bank for a year you earn the interest on it, so this equasion seems wrong to me, every answer you get needs to be multiplied by an extra (1+i) if you are counting n as compound periods or years having intrest collected on the money. am i right???!
Explanation / Answer
AnnuityDue = AnnuityOrdinary x (1 + i) AnnuityOrdinary= 700FVIFA(6%,4) =700x4.3746 =$3062.22 AnnuityDue= 3062.22x1.06= $3245.9532 payments made under an Ordinary Annuity occur at the END of the period while payments made under an Annuity Due occur at the BEGINNING of the period. The question above says 700$ is deposited at the beginning of each year, and therefore this is an example of Annuity Due. Hope this is clear now!
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