Question

Assume that you just received an ordinary annuity with 8 annual payments of $1,000 each. You plan to invest the payments at a 6% annual interest rate. How much would you have, in total, at the end of the 8th year?

a. $10,503.27
b. $10,713.34
c. $ 9,897.47
d. $10,297.33
e. $10,095.42

Answer 1

Using the future value formula for annuities, at the end of the 8th year with annual payments of $1,000 and a 6% interest rate, you would have a total of $9,897.47.

Step-by-step explanation:

The question involves calculating the future value of an ordinary annuity with 8 annual payments of $1,000 each and a 6% annual interest rate. To find the total amount at the end of the 8th year, we would use the future value formula for annuities:

• Calculate the future value factor for an annuity: FVIFA = [(1 + r)^n - 1] / r, where r is the periodic interest rate and n is the number of periods.
• Calculate the total future value by multiplying the annuity payment with the FVIFA.

Let's calculate the FVIFA first:
FVIFA = [(1 + 0.06)^8 - 1] / 0.06 = 9.89747. Multiplying this by the annual payment of $1,000 gives us 9.89747 * $1,000 = $9,897.47.

Therefore, at the end of the 8th year, you would have a total of $9,897.47.