Effie plans to save $100 every six months for the next few years. If her account...
Effie plans to save $100 every six months for the next few years. If her account earns 14 percent, compounded semi-annually, how much will be in her account in 5 years?
Homework Answers
The amount she will have at the end of 5th year
Future Value of an Ordinary Annuity = P x [{(1+ r)n - 1} / r ]
Annual savings (P) = $100
Semi-annual interest rate (r) = 7.00% [14.00% / 2]
Number of periods (n) = 10 Years [5 Years x 2]
Therefore, Future Value of an Ordinary Annuity = P x [{(1+ r)n - 1} / r ]
= $100 x [{(1 + 0.07)10 - 1} / 0.07]
= $100 x [(1.967151 – 1) / 0.07]
= $100 x [0.967151 / 0.07]
= $100 x 13.816448
= $1,381.64
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