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Calculating future and present values of ordinary annuities

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Problem 1
If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.
- Recalculate the future value at 6 percent interest and 9 percent interest.

Problem 2
If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.
- Recalculate the present value at 10 percent interest and 13 percent interest.

Problem 3
What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?
- Recalculate the present value using discount rate of 11 percent and 12 percent.

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Solution Summary

The solution depicts the methodology to calculate the present and future values of ordinary annuities. Calculations are carried out with the help of suitable formulas.

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Problem 1
If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.
Periodic Deposit=R=$400
Number of periods=n=6
Rate of interest=i=8%

Future Value of ordinary annuity=FV=R/i*((1+i)^n-1)=400/8%*((1+8%)^6-1)=$ 2934.37

-Recalculate the future value at 6 percent interest and 9 percent interest.
If Rate of interest=i=6%
Future Value of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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