If you start making $60 monthly contributions today and continue them for five y

Question

If you start making $60 monthly contributions today and continue them for five years, what’s their future value if the compounding rate is 10.25 percent APR? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

What is the present value of this annuity? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

If you start making $60 monthly contributions today and continue them for five years, what’s their future value if the compounding rate is 10.25 percent APR? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

Solution:

The question is related to Annuity Series.

Since the payment is started from today (i.e. at the beginning of the month), it is a series of Annuity Due.

Annuity Due is a series of receipt or payment of equal amount for a specified period.

Monthly Contribution Amount = $60

Interest Rate =10.25% p.a. or 10.25/12 = 0.8541667%

Time = 5 Year x 12 = 60

Future Value of Annuity = Monthly Contribution x FVIFA (0.8541667%, 60)

FVIFA (0.8541667%, 60) can be calculated by using following formula:

= [(1+0.008541667)60- 1)] / 0.008541667 x (1+0.008541667)

= (1.66583 – 1) / 0.008541667 x 1.008541667

= 0.66583 / 0.008541667 x 1.008541667

= 78.61668

Future Value of Annuity Due = $60 x 78.61668 = $4,717

Present Value of Annuity Due = Monthly Contribution x PVIFA (0.8541667%, 60)

PVIFA (0.8541667%, 60) can be calculated by using following formula:

= [(1 – 1/(1+0.008541667)60)] / 0.008541667 x (1+0.008541667)

= (46.79399 – 1) / 0.008541667 x 1.008541667

= 5407.042

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.