Use the formula for the future value of an ordinary annuity

Use the formula for the future value of an ordinary annuity to calculate A with the monthly payment R = $500, the annual interest rate r= 8.0%, and the number of monthly payments n = 132

A= $______

Solution

annual interest rate = 8 %

so monthly interest rate = 8/12 = 0.6666 %

n = 132

monthly payment = 500

P = PMT [((1 + r)ⁿ - 1) / r]

Where:

P = The future value of the annuity stream to be paid in the future

PMT = The amount of each annuity payment = 500

r = The interest rate = 0.6666 %

n = The number of periods over which payments are made = 132

hence future value of

500*((1+0.666/100)¹³²-1)/0.6666/100)

=500*(1.403869)/(0.00666)

=105395.5915