An annuity account earns monthly payments and has an annual interest rate of 4 percent. What value of r must be substituted into the formula to calculate the future value of the annuity? Round the value to the nearest thousandth.(1 point) Responses 0.001 0.001 0.003 0.003 0.040 0.040 0.020
To calculate the future value of an annuity, the formula used is:
FV = Pmt * [(1 + r)^n - 1] / r
Where:
FV = future value of the annuity
Pmt = monthly payment
r = monthly interest rate
n = number of months
Given that the annual interest rate is 4 percent, we need to convert this into a monthly interest rate. Since there are 12 months in a year, we divide the annual interest rate by 12:
r = 0.04 / 12
r = 0.0033333 (approx. 0.003 to the nearest thousandth)
Therefore, the value of r that must be substituted into the formula to calculate the future value of the annuity is 0.003 (to the nearest thousandth).