Chapter A, Problem A.4BE

To determine

Annuity: The fixed amount paid or received in equal time periods is referred to as annuity.

Future value: This is the amount of present value accumulated or compounded at a rate of interest till a particular future date.

Formula to compute future value at compounded interest:

$\text{Future value = Present value}\times {\left(\text{1+Interest rate}\right)}^{\text{Time period}}$

Or,

$\begin{array}{l}\text{Future}\\ \text{value}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Invested }\left(\text{present}\right)\text{value × }\\ \text{Future value factor of \$1 at interest rate for time periods}\end{array}\right\}$

To compute: The future value of sinking fund, if deposits are made annually for 10 years