Chapter 4, Problem 9PROB

Summary Introduction

The annual payment is $385 for the next eight years at 7% compounded annually.

Future value of an annuity is the total future value of a series of periodic payments made at the end of each year at a given interest rate for a specified period.

$F{V}_{\text{Annuity}}=P\left[\frac{{\left(1+r\right)}^n-1}{r}\right]$

Future value of an annuity due is the total future value of a series of periodic payments made at the beginning of each year at a given interest rate for a specified period.

$F{V}_{\text{Annuity due}}=P\left[\frac{\left({\left(1+r\right)}^n-1\right)\times \left(1+r\right)}{r}\right]$

Here,

The future value annuity is “$F{V}_{\text{Annuity}}$”.

The periodic payments are “P”.

The interest rate is “r”.

The maturity period of time period is “n”.