A rich uncle has promised to pay you $3,160 a year for the next 25 years. If you invest this...
Question:
A rich uncle has promised to pay you $3,160 a year for the next 25 years. If you invest this money at 4.9%, how much will you have at the end of 25 years?
Annuity Future Value:
A stream of equal annual (or other periodic) cash flows is an annuity. The future value of an annuity is the amount you would have in a bank account if you deposit all annuity payments in the account at the corresponding interest rate.
Answer and Explanation: 1
Let
- FVA = future value of annuity
- D = periodic deposit = $3,160
- r = interest rate = 4.9%
- n = number of years = 25
With the help of the annuity future value formula, we will calculate the account balance in 25 years:
{eq}FVA=D*\frac{(1+r)^{n}-1}{r}\\ FVA=3,160*\frac{(1+0.049)^{25}-1}{0.049}\\ FVA=\$148,754.88\\ {/eq}
You will have $148,754.88 at the end of 25 years
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How to Find the Value of an Annuity
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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.
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