Chapter M, Problem 4E

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Chapter
Section

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# Future Value of Annuity Using appropriate tables, solve the following future value of annuity problems.Required: 1. What is the future value on December 31,2025, of 7 annual cash flows of $10,000 with the first cash payment being made on December 31,2019, and interest at 12% being compounded annually? 2. What is the future value on December 31,2026, of 7 annual cash flows of$10,000 with the first cash payment made on December 31, 2019, and interest at 12% being compounded annually?

1.

To determine

Determine the future value on December 31, 2025.

Explanation

Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

Cash flow occurs during the first day of each time period is known as an annuity due, whereas cash flow occurs during the last day of each time period is known as an ordinary annuity.

n – 7 annual cash flows

I –Interest rate 12% compounded annually.

C – \$10,000 Cash flow

Here, the first cash flow starts on December 31, 2019 and ends on December 31, 2025. Also, it is given that there are 7 annual cash flows. Since, it is observed that the cash flow occurs during the last day of each time period, it is an ordinary annuity.

Determine the future value ordinary annuity (Future valueO) on December 31, 2025...

2.

To determine

Determine the future value on December 31, 2026.

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