Question
Derive the formula for the future value of an ordinary annuity with $1 payments, 20 payment periods, and 5% interest per payment period and use
Derive the formula for the future value of an ordinary annuity with $1 payments, 20 payment periods, and 5% interest per payment period and use it to compute the future value. For this problem part of the computation is written out for you. The bottom equation written here is just a statement of the future value of the ordinary annuity (written based on the bucket approach, as usual), while the top equation will be the result of multiplying both sides of the bottom one by the growth factor 1.05. Write out the left side of the top equation, then subtract the bottom equation from the top one (such a clever idea!), and use the results to solve for FV. = (1.05)FV ($1)(1.05)19 + ($1)(1.05)18 + ...+ ($1)(1.05)3 + ($1)(1.05)2 + ($1)(1.05) + $1 = FV
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started