Future Value of an Annuity
To save money, you want to begin contributing money to a risky brokerage account. Your plan is to make 4 contributions to the brokerage account. Each contribution will be $5,000 and each will be made at the beginning of each quarter beginning now and until the end of the year (the first immediately and then every 3 months). Assume that the account pays an 8% quarterly return with monthly compounding. How much money do you expect to have in the account immediately after making the last deposit?
possible answers:
a)20,938.67 b)19,784.21 c)19,021.54
d)26,546.36 e)25,369,14 f)22,602.32
g)22,215.54 h)23,598.54 i)24,879.73
j)21,791.64
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SOLUTION This solution is FREE courtesy of BrainMass!
Answer: f)22,602.32
Quarterly interest rate= 8%
Therefore monthly interest rate with monthly compounding= 2.6667% =8%/3)
Compounding rate= 2.6667%
Quarter Dposit at the beginning of Month No of months for which cash is invested FV factor Cash deposit FV of cash flow at the beginning of fourth quarter
1 1 9 1.267262 5000 6336.31
2 4 6 1.171056 5000 5855.28
3 7 3 1.082153 5000 5410.77
4 10 0 1 5000 5000.00
Total= 22602.36
https://brainmass.com/business/annuity/future-value-annuity-28624