Question

What is the future value of an ordinary annuity of ₱38,000 per year, for 7 years, at 8% interest compounded annually?

Answer 1

Annuities

The future value (FV) of an annuity is given by:

`FV=A\cdot((1+i)^n-1)/(i)`

Where:

A is the value of the annuity or the regular payment

i is the interest rate adjusted to the compounding period

n is the number of periods of the investment (or payment)

The given values are:

A = $38,000

n = 7 years

i = 8% = 0.08

Substituting:

`\begin{gathered} FV=\$38,000\cdot((1+0.08)^7-1)/(0.08) \\ FV=\$38,000\cdot((1.08)^7-1)/(0.08) \\ \text{Calculate:} \\ FV=\$38,000\cdot(0.7138243)/(0.08) \\ FV=\$38,000\cdot8.9228 \\ FV=\$339,066.53 \end{gathered}`

The future value is $339,066.53