An ordinary annuity with 2,000 regular at 3% compounded annually for one year
P = Po(1+r)^n.
Po = $2,000.
r = 0.03/year.
n = 1 Compounding period.
P = ?.
To calculate the value of an ordinary annuity, you need to determine the future value of each installment and then sum them up.
The formula for calculating the future value of an ordinary annuity is:
FV = P * [(1 + r)^n - 1] / r
Where:
FV = the future value of the annuity
P = the periodic payment (in this case, $2,000)
r = the interest rate per compounding period (3% per year)
n = the number of compounding periods (1 year)
Let's calculate the future value of the annuity:
Step 1: Convert the interest rate to a decimal
r = 3% / 100 = 0.03
Step 2: Substitute the values into the formula
FV = 2,000 * [(1 + 0.03)^1 - 1] / 0.03
Step 3: Simplify the equation
FV = 2,000 * (1.03 - 1) / 0.03
FV = 2,000 * 0.03 / 0.03
FV = 2,000
The future value of the annuity is $2,000.