Future Value of annuity

QUESTION

Find the future vales of the following ordinary annuities:a. FV of $400 paid each 6 months for 5 years at a nominal rate of 12 %, compounded semiannually.b. FV of $200 paid each 3 months for 5 years at a nominal rate of 12%, compounded quarterlyc. These annuities receive the same amount of cash duri
a) Step1: Go to excel sheet and click “insert” to insert the function. Step2: Select the “FV” function as we are finding the Future value of annuity in this case. Step3: Enter the values as Rate = 12%/2; Nper = 5*2; PMT = -400 Step4: Click “OK” to get the desired value. The value comes to “$5,272.32” b) Step1: Go to excel sheet and click “insert” to insert the function. Step2: Select the “FV” function as we are finding the Future value of annuity in this case. Step3: Enter the

alues as Rate = 12%/4; Nper = 5*4; PMT = -200 Step4: Click “OK” to get the desired value. The value comes to “$5,374.07” c) Though the annuities are same and the nominal interest also remains constant but the compounding makes the difference. As the compounding periods increase the future value of annuity also increases.

ANSWER:

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