Question

future value of ordinary annuity

bab savings and loan is paying 6% interest compounded monthly. How much will 1000 deposited at the end of each month be worth after 2 years?

Answer 1

Since payments of an ordinary annuity are made at the end of a period and the last payment does not earn interest;

$FVOA\ =A\ *\ \frac{{(1+r)}^n-1}{r}$

$rate\ compounded\ monthly\ =\ \frac{0.06}{12}\ =\ 0.005\ interest\ p.m$

$FVOA\ =300,000\ *\ \frac{{(1+0.005)}^{24}-1}{0.005}\ =\ 25,431.96$

$The\ future\ value\ of\ ordinary\ annuity \ will\ be \ \$25,431.96$