Question

Asked Mar 24, 2019

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At the end of each quarter-year, for 6 years, $1,200 is deposited into an investment paying 3.4% interest compounded quarterly. Calculate the future value of the increasing annuity.

Step 1

At the end of each quarter-year, for 6 years, $1,200 is deposited into an investment paying 3.4% interest compounded quarterly. Calculate the future value of the increasing annuity.

Future value of an annuity is given by: FV = A / R x {(1 + R)^{N} - 1]

where, A = Annuity payment at the end of each period

R = interest rate per period

N = number of periods

Step 2

In this question, period is a quarter,

A = $ 1,200

R = Interest rate per period = interest rate per quarter = 3.4% / 4 = 0.8500%

N = number of quarters in 6 years = 4 x 6 = 24

Step 3

Hence, FV = A / R x [(1 + R)N - 1] = 1,200 / 0.85% x [(1 + 0.85%)24 - ...

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