Find the future value of the annuity. Payments of $5,000 at the end of each year for 15 years at 8% interest compounded annually. Why is r=1.08 but not 0.08?



Answer :

Answer:

Given that,

Payments of $5,000 at the end of each year for 15 years at 8% interest compounded annually.

P=5000

n=15

r=8%

That is: r=0.08

From the definition of annuity, we have that

[tex]FV=P(\frac{(1+r)^n-1}{r})[/tex]

where FV is the future value and r is the interest.

Substitute the values we get,

[tex]FV=5000(\frac{(1+0.08)^{15}-1}{0.08})[/tex]

Solving this using calculator we get,

[tex]FV=135760.57[/tex]

Answer is: $135760.57