What is the future value of a 5 yr. annuity due that promises to pay $300.00 each yr? Assume that all payments are reinvested at 7% a yr., until Yr. 5.
i think you take $300.times 7% times 5 yrs.
yes. But be sure to compound he interest.
To calculate the future value of an annuity due, you can use the formula:
FV = P * [(1+r)^n - 1] / r
where:
FV = Future Value of the annuity
P = Annual payment
r = Interest rate per compounding period
n = Number of compounding periods
In this case, you have an annuity due with an annual payment of $300. The interest rate is 7% per year and the duration is 5 years.
Let's calculate the future value step by step:
1. Convert the interest rate to a decimal:
r = 7% / 100 = 0.07
2. Calculate the future value of each payment:
FV = $300 * [(1+0.07)^5 - 1] / 0.07
FV = $300 * [(1.07)^5 - 1] / 0.07
FV = $300 * [1.40255 - 1] / 0.07
FV = $300 * 0.40255 / 0.07
FV = $1,207.65
Therefore, the future value of a 5-year annuity due that promises to pay $300.00 each year and is reinvested at 7% per year until Year 5 is approximately $1,207.65.