Find the future value of the ordinary annuity with payout of $20,000
at 4.5% interest compounded annually for 12 years.
To find the future value of an ordinary annuity, we can use the formula:
FV = P * ((1 + r)^n - 1) / r
Where:
FV = Future value of the annuity
P = Payout per period (in this case, $20,000)
r = Interest rate per period (in this case, 4.5% or 0.045)
n = Number of periods (in this case, 12 years or 12 periods)
Now, let's substitute the values into the formula:
FV = $20,000 * ((1 + 0.045)^12 - 1) / 0.045
First, let's calculate the value inside the parentheses:
(1 + 0.045)^12 = 1.65479
Now, let's substitute this value back into the formula to find the future value:
FV = $20,000 * (1.65479 - 1) / 0.045
FV = $20,000 * 0.65479 / 0.045
Finally, let's calculate the future value:
FV = $290,942.22
Therefore, the future value of the ordinary annuity with a payout of $20,000 at 4.5% interest compounded annually for 12 years is $290,942.22.