What is the future value of an ordinary annuity of $12000 per year, for three years, at 9% percent interest compounded annually?
To calculate 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 = Annual payment (in this case, $12,000)
r = Interest rate per period (9% or 0.09 in decimal form)
n = Number of periods (in this case, 3 years)
Now let's plug in the values into the formula and calculate the future value:
FV = $12,000 * ((1 + 0.09)^3 - 1) / 0.09
First, let's calculate the expression inside the parentheses:
(1 + 0.09)^3 = 1.09^3 = 1.295029
Now, we can substitute this value back into the formula:
FV = $12,000 * (1.295029 - 1) / 0.09
Next, simplify the numerator:
$12,000 * (0.295029) / 0.09 = $39,502.58
Therefore, the future value of an ordinary annuity of $12,000 per year, for three years, at 9% interest compounded annually, is approximately $39,502.58.