$500 per year for five years at the rate of 7% annually.
$500 per year for five years at the rate of 7% compounded annually.
$500 per year for five years at the rate of 7% compounded annually.
Please help me find the present value of the ordinary annuity. ?
03
May
ignoramus
May 3, 2010 at 7:02 pm
After 1 year, $500 will be worth 1.07 x 500
After 2 years, multiply everything by 1.07 again, so the value becomes (1.07)² x 500.
Same again after three years, value becomes (1.07)³ x 500, and so on.
So after five years, total value = (1.07)^5 x 500 = 1.40255 x 500 = $701.28