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you wish to accumulate $50,000 in an ordinary annuity which pays 12% interest compounded quarterly. you wish to make periodic payments at the end of each quarter for 8 years. the formula for an ordinary annuity is . what is the value for that you will use?

Sagot :

rafikiedu08

The value of n which I will use is 32 in the given formula of ordinary annuity.

We know that formula for ordinary annuity is

FV = [tex]\frac{P[ (1+ \frac{r}{m})^m^T-1]}{\frac{r}{m} }[/tex]

where FV is future value, P is present value, r is interest rate, T is number of years, m is number of periods based on compounding frequently.

In the given problem r%= 12%

⇒ r = 0.12

⇒ T = 8 years

⇒ m = compounded quarterly

⇒ m = 4

⇒ mT = 8×4= 32

Given ordinary annuity formula is

[tex]S= R[ \frac{(1+i)^n - 1}{i}][/tex]

where i = r/m = 0.12/4 which is 0.03

⇒ n = mT = 8×4 =32

Hence, the value of n used will be 32.

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