FIN201 Assessments S 2 Online quiztechniques review 1096

FIN201 Assessments S / / / 2, Online quiz-techniques review (1096) Question 6 Not yet answered Find the accumulated value of an ordinary annuity of $469 per year for 8 years if money is worth 1 1% p.a. Marked out of 5.00 Answer Flag question Fit Tir Next page Previous page

Solution

Future value of ordinary annuity

Formula for future value of ordinary annuity= C*((1+i)^n -1)/i

c= cash flow per period =$469

i=interest rate=11%

n= number of payments=8

Formula for future value of ordinary annuity= $469* ((1+0.11)^8-1)/0.11

                                                                     = $5562.074

$5562.074 is the accumulated value of the ordinary annuity, basically accumulated value is future value of annuity at the end of \"n\' years.

whereas Present value calculates the value of annuity at the \"0\" year

Present value of ordinary annuity

Formula for Present value of ordinary annuity= C*((1-(1+i)^-n)/i*)(1+i) =$469*((1-(1.11)^-8)/0.11)*1.11

                                                                         =$ 2413.53

Present Value calculation shows the value of annuity at zero year.