What is the future value of an ordinary annuity of $200 per year for 5 years at 6%?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

What is the future value of an ordinary annuity of $200 per year for 5 years at 6%?

Explanation:
The key concept is the future value of an ordinary annuity: you deposit a fixed amount at the end of each period, and each deposit earns interest until the end of the final period, so you sum the accumulated values. FV = PMT × [((1 + i)^n − 1) / i] with i = 0.06, n = 5, PMT = 200. Compute (1.06)^5 ≈ 1.33823. Then (1.33823 − 1) / 0.06 ≈ 0.33823 / 0.06 ≈ 5.637. Multiply by 200 ≈ 1127.40. So the future value is about 1,127.42.

The key concept is the future value of an ordinary annuity: you deposit a fixed amount at the end of each period, and each deposit earns interest until the end of the final period, so you sum the accumulated values.

FV = PMT × [((1 + i)^n − 1) / i] with i = 0.06, n = 5, PMT = 200.

Compute (1.06)^5 ≈ 1.33823. Then (1.33823 − 1) / 0.06 ≈ 0.33823 / 0.06 ≈ 5.637. Multiply by 200 ≈ 1127.40. So the future value is about 1,127.42.

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