Question

You deposit $4,000 at the end of each year into an ordinary annuity with an interest rate of 5% compounded annually. What will be the value of the annuity after 10 years? Do not round until the final answer; then round to the nearest dollar as needed.

Answer 1

Use the formula

FV = P((1+r/n)^(n*t) - 1 )/( r/n )

in this case

P = 4000
r = 0.05 (5% = 5/100 = 0.05)
n = 1
t = 10

plug all this in to get


FV = P((1+r/n)^(n*t) - 1 )/( r/n )


FV = 4000((1+0.05/1)^(1*10) - 1 )/( 0.05/1 )


FV = 50311.5701421954


FV = 50311.57

Answer 2

So the value of the annuity after 10 years is $50,311.57