Question

Find the future value for the ordinary annuity with the given payment and interest rate.
PMT= $2,400; 1.25% compounded monthly for 5 years.

Answer 1

The future value of the ordinary annuity is $148,753.46.

What is the future value?

An ordinary annuity is a series of payment made at the end of each period. When an amount is compounded monthly, it means that both the amount deposited and the interest accrued increase in value every month.

The formula for determining the future value of an ordinary annuity is: annuity factor x payment

{[(1+r)^n] - 1} / r

Where:

• r = interest rate = 1.25 /12 = 0.104%
• n  = number of periods = 12 x 5 = 60

{(1.00104^60) - 1] / 0.00104} x 2400 = $148,753.46

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