If you start making $225 monthly contributions today and continue them for four
ID: 2795786 • Letter: I
Question
If you start making $225 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 12.00 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 $225 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 12.00 percent APR? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Explanation / Answer
Future value Annuity = P [(1+r)^n -1/r] P = Periodical Payment=$225 r = Interst rate =6% Annual Monthly Interst =6%/12 =0.5% n= Number of Periods =4 years =4*12= 48 Months Future Value of Annuity = $225 [(1+0.005)^48 -1]/0.005 Future Value of Annuity = $225 [(1.005)^48 -1]/0.005 Future Value of Annuity = $225 [(1.270489 -1]/0.005 Future Value of Annuity = $225 (0.270489/0.005) Future value of Annuity =$12,172 Present value of Annuity = Future Value * PV factor at 48 period at 0.5% PV factor at 48 period at 0.5% =0.78709 Present Value of Annuity = $12,172 *0.78709 =$9580.46
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