What is the future value of a $600 annuity payment over five years if interest rates...

What is the future value of a $600 annuity payment over five years if interest rates are 6 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Solutions

Expert Solution

Compute the present value annuity factor (PVIFA), using the equation as shown below:

PVIFA = {1 – (1 + Rate)-Number of periods}/ Rate

= {1 – (1 + 0.06)-5}/ 6%

= 4.21236378546

Hence, the present value annuity factor is 4.21236378546.

Compute the future value of the annuity, using the equation as shown below:

Future value = Annual cash flows*Present value annuity factor/ (1 + Rate)Time

= $600*4.21236378546/ (1 + 0.06)5

= $2,527.41827127/ 1.3382255776

= $1,888.63395945

Hence, the future value of the annuity is $1,888.63.

jeff jeffy answered 1 year ago

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