Question

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is (use the tables in the handbook):

Answer 1

The value of Ted's annuity at the end of eight years is $5318.3138.

Explanation:

Given : Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually.

To find : The value of Ted's annuity at the end of eight years ?

Solution :

The future value of an ordinary annuity is given by,

`FV=C[((1+i)^n-1)/(i)]`

Where,

C is deposit amount C=$500

n is the number of payments n=8

i is the interest rate i=8%=0.08

Substitute the value in the formula,

`FV=500[((1+0.08)^(8)-1)/(0.08)]`

`FV=500[((1.08)^(8)-1)/(0.08)]`

`FV=500[(0.8509)/(0.08)]`

`FV=500[10.6366]`

`FV=5318.3138`

Therefore, the value of Ted's annuity at the end of eight years is $5318.3138.