Question

Don made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. Using the tables found in the textbook, calculate the value of Don's annuity at the end of eight years.

Answer 1

The future value of an annuity is given by the formula

`FV=P\left[(\left(1+r\right)^n-1)/(r)\right]`
where
FV is the future value
P is the periodic payment
n is the number of periods
r is the rate

Substituting the given values into the formula, we have

`FV=500\left[(\left(1+0.08\right)^8-1)/(0.08)\right]=5318.31`

The value of Don's annuity at the end of 8 years is $5,318.31.