# 1. Under a company savings plan, a worker contributes $250 a month to an ordinary annuity paying...

## Question:

1. Under a company savings plan, a worker contributes $250 a month to an ordinary annuity paying 6%, compounded monthly. Calculate the annuity's worth in 35 years.

2. You are planning to buy a car in 3 years. So you pay $250 each month into an account that pays 4% annual interest, compounded monthly. Find the present value of the annuity.

## Present Value of an Annuity:

An equal amount of cash flow that occurs at specified time intervals is called an annuity. There are two major forms of annuity:

- Ordinary annuity - cash flows occur at the end of the end of the period
- Annuity due - cash flows occur at the start of the period.

To determine the present value of an annuity the time value of money factor is applied to discount the annuity.

## Answer and Explanation: 1

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View this answer**1. Under a company savings plan, a worker contributes $250 a month to an ordinary annuity paying 6%, compounded monthly. Calculate the annuity's worth...**

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Chapter 8 / Lesson 3Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.

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