Please help me with the homework:
1. Determine the amount or future value of annuity after five payments of R600,
each paid annually, at an interest rate of 10% compound annually.
2. Mr Jones decided to save for his son 's higher education, and every year,
from the child's first birthday, he deposits R1200,if he receives 11% interest
annually from this account, what will be the sum accrued after the child's 18 birthday
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Although the problem does not tell which annuity is considered, "ordinary" or an "annuity due",
I will assume that the annuity in this post is "ordinary" and the payments are made
at the end of each year, in opposite to an "annuity due", where the payments are made
at the beginning of each year.
For Ordinary Annuity saving plan, the general formula is
FV = , (1)
where FV is the future value of the account; P is the annual payment (deposit);
r is the annual percentage rate presented as a decimal;
n is the number of deposits (= the number of years, in this case).
Under given conditions, P = 600; r = 0.1; n = 5.
So, according to the formula (1), you get at the end of the 5-th year
FV = = R 3663.06. ANSWER
Note that you deposit only 5*R600 = R3000. The rest is what the account earns/accumulates in 5 years.
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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.
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After reading my post, you should be able to solve next problem in your post ON YOUR OWN using the same methodology.
Happy calculations / learning ( ! )