Question

Find the future value of the annuity. Payments of $5,000 at the end of each year for 15 years at 8% interest compounded annually. Why is r=1.08 but not 0.08?

Answer 1

Given that,

Payments of $5,000 at the end of each year for 15 years at 8% interest compounded annually.

P=5000

n=15

r=8%

That is: r=0.08

From the definition of annuity, we have that

`FV=P(((1+r)^n-1)/(r))`

where FV is the future value and r is the interest.

Substitute the values we get,

`FV=5000(((1+0.08)^(15)-1)/(0.08))`

Solving this using calculator we get,

`FV=135760.57`

Answer is: $135760.57