21. Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8%
compounded annually. Using the tables in the Business Math Handbook that accompanies the course
textbook, calculate the value of Ted's annuity at the end of eight years.
A. $4,318.30
B. $2,837.03
C. $5,318.30
End of exam
D. $2,873.30
No table. Cannot copy and paste here.
To get the value of Ted's annuity at the end of eight years, we can use the formula for the future value of an ordinary annuity. The formula is:
Future Value = Payment × [(1 + r)^n - 1] / r
Where:
- Payment is the amount deposited each year
- r is the interest rate per period (in this case, 8% compounded annually)
- n is the number of periods (in this case, eight years)
Using the formula, we can calculate the future value as follows:
Future Value = $500 × [(1 + 0.08)^8 - 1] / 0.08
Now, we can calculate the future value using a financial calculator or by referring to the appropriate tables. For this case, we'll use the tables in the Business Math Handbook.
1. Look for the future value of an annuity table in the handbook. Typically, the table will have rows for different interest rates and columns for different numbers of periods.
2. Locate the row that corresponds to an interest rate of 8%.
3. Scan the row to find the column that corresponds to eight periods (eight years in this case).
4. The value in that cell is the future value factor. Multiply this factor by the annual payment of $500 to get the future value of the annuity.
Based on the information you provided, the possible options are A, B, C, or D. We can compare these options with the calculated future value to find the correct answer.
Future Value = $500 × [(1 + 0.08)^8 - 1] / 0.08 = $4,318.30
Comparing the calculated future value to the options given, we find that the correct answer is A. $4,318.30.