Math Problem Statement

Use a calculator to evaluate an ordinary annuity formula A = m

1 + r n nt

− 1 r n

for m, r, and t (respectively). Assume monthly payments. (Round your answer to the nearest cent.) $100; 7%; 10 yr

Solution

The formula for the future value AA of an ordinary annuity is given as:

A=m×((1+rn)nt1rn)A = m \times \left( \frac{(1 + \frac{r}{n})^{nt} - 1}{\frac{r}{n}} \right)

Where:

  • mm is the monthly payment
  • rr is the annual interest rate
  • nn is the number of payments per year (12 for monthly payments)
  • tt is the total time in years

Given values:

  • m=100m = 100
  • r=0.07r = 0.07 (7% annual interest rate)
  • n=12n = 12 (monthly payments)
  • t=10t = 10 years

Let’s plug in these values and compute the future value AA.

A=100×((1+0.0712)12×1010.0712)A = 100 \times \left( \frac{(1 + \frac{0.07}{12})^{12 \times 10} - 1}{\frac{0.07}{12}} \right)

I'll calculate this now.The future value AA of the ordinary annuity is $17,308.48 after 10 years, with monthly payments of $100 at an annual interest rate of 7%.

Would you like more details on how the calculation was performed or have any other questions?

Here are 5 related questions you might find interesting:

  1. How would the future value change if the interest rate increased to 8%?
  2. What is the difference between an ordinary annuity and an annuity due?
  3. How does the compounding frequency (monthly, quarterly, etc.) affect the future value?
  4. What is the formula for calculating the present value of an annuity?
  5. How would a lump sum investment compare to regular annuity payments?

Tip: In an ordinary annuity, payments are made at the end of each period, which can make a significant difference compared to annuity due.

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Math Problem Analysis

Mathematical Concepts

Finance
Annuities
Exponential Growth
Compound Interest

Formulas

A = m * [(1 + r/n)^(nt) - 1] / (r/n) (Ordinary Annuity Future Value Formula)

Theorems

Compound Interest Theorem

Suitable Grade Level

Undergraduate Finance / High School Advanced Math