Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question

Transcribed Image Text:You expect to make equal payments of $ 7390.00 at the end of each semi-annual
period over the next 9 years (ordinary annuity) into a new bank account earning
interest at 4 %.
What is the future value of the annuity stream, if the frequency of compounding is 2
times per year?
(Answer to the nearest cent. i.e. one thousand dollars would be entered 1000.00)
Expert Solution

Step 1
Future Value of Annuity:
It refers to the future worth of the periodic payments made at the end of each period.
Future value is calculated by compounding these periodic payments with an interest rate. The higher the rate of interest, the higher the future value of the annuity will be.
The concept of future value is used by many investors to know their portfolio worth.
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