Answered: Find the future value of a 12-year…

Find the future value of a 12-year annuity due with payments of $3,000 and an annually compounded interest rate of 6%. The future value is $. (Round to the nearest cent.)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6MC: You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years....

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Find the future value of a 12-year annuity due with payments of $3,000 and an annually compounded interest rate of
6%.
The future value is $. (Round to the nearest cent.)

Expert Solution

Concept:

The future value of an annuity due is the value of a series of equal payments made at the beginning of each period, rather than at the end of each period as in an ordinary annuity. It represents the future value of the payments, taking into account the effect of compounding interest. The formula for calculating the future value of an annuity due is:

Where:

FV = future value
PMT = payment amount
r = interest rate
n = number of payments or periods

In other words, the future value of an annuity due represents the amount that a series of equal payments, made at the beginning of each period, will grow to after a certain number of periods, given a specified interest rate. This formula can be used to calculate the future value of an annuity due, taking into account the timing of the payments.

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