56.4k views
2 votes
ii). An ordinary due annuity pays Nu.200 at the end of each month for 4 years. If the interest is 3.5% per year, what is the future value of this annuity?​

User DaveKub
by
7.7k points

1 Answer

6 votes

Explanation:

To calculate the future value of an ordinary due annuity, we can use the formula for the future value of an ordinary annuity:

Future Value = Payment × [(1 + r)^n - 1] / r

Where:

Payment = Amount paid at the end of each period (Nu.200 in this case)

r = Interest rate per period (monthly rate in this case)

n = Number of periods (number of months in this case)

Given:

Payment = Nu.200

Interest rate = 3.5% per year

Number of years = 4

To calculate the monthly interest rate, we divide the annual interest rate by 12 (number of months in a year):

Monthly interest rate = (3.5% / 100) / 12 = 0.002917 (approximately)

To calculate the number of periods, we multiply the number of years by 12 (number of months in a year):

Number of periods = 4 years × 12 months/year = 48

Now, we can plug these values into the formula to calculate the future value:

Future Value = Nu.200 × [(1 + 0.002917)^48 - 1] / 0.002917

Calculating this expression will give us the future value of the annuity.

Future Value ≈ Nu.200 × [1.17768 - 1] / 0.002917

Future Value ≈ Nu.200 × 0.17768 / 0.002917

Future Value ≈ Nu.200 × 60.907

Therefore, the future value of this ordinary due annuity is approximately Nu.12,181.40.

User JF Dion
by
8.3k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.