Future value of an ordinary annuity?
I need help with a caluclation .. I do not need the answer, I guess just the formula, or if someone could explain how they would get the answer to this: What is the future value of an ordinary annuity of $ 12,000 per year for three years at 9% interest compounded annually? A clear and understandable formula will be useful. Thank you!
Just think about what happens every year: you start with 12k. in During the year, accumulate 9% interest, making year-end balance: 12000 * 1.09 = 13.080 and adds another 12000, since this is an annuity, you get 12,000 per year. 13,080 + 12,000 = 25080. Thus at the end of year 2, do the same: (25080 * 1.09) + 12000 = 39337.20 and end of year 3, you get the interest for that year, but you will not receive another 12,000 (because if it did, it would be the fourth instance to get 12000, but this is only one years annuity 3): (39337.20 * 1.09) = 42877.55
Robert Turner, The Difference Network, Marquette University
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