Final answer:
The future value of an ordinary annuity of $1,000 each year for 10 years, at a 3% interest rate, is approximately $11,464.
Step-by-step explanation:
The future value of an ordinary annuity can be calculated using the following formula for an annuity compounded annually:
Future Value = P × [(1+r)^n - 1] / r
Where:
- P = Payment amount per period
- r = Interest rate per period
- n = Number of periods
By plugging in the values:
- P = $1,000
- r = 3% or 0.03
- n = 10 years
We get:
Future Value = $1,000 × [(1 + 0.03)^10 - 1] / 0.03
Future Value = $1,000 × [(1.03)^10 - 1] / 0.03
Future Value = $1,000 × [1.343916379 - 1] / 0.03
Future Value = $1,000 × 0.343916379 / 0.03
Future Value = $11,463.85 (rounded to the nearest cent)
Therefore, the future value of the ordinary annuity is approximately $11,464.