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15 March, 22:22

Martin deposits $900 in an ordinary annuity at the end of each quarter in an account earning 6% interest compounded quarterly. What is the future value of the acount in 1 year?

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  1. 15 March, 22:51
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    Annuity per period (A) = $900

    Interest rate (r) = 6% = 0.06

    Number of years = 1 year

    Future value (FV) = ?

    PV = A ((1 + r/m) nm) - 1)

    r / m

    FV = $900 ((1 + 0.06/4) 1x4 - 1) -

    0.06/4

    FV = $900 ((1.015) 4) - 1)

    0.015

    FV = $900 (1.0614 - 1)

    0.015

    FV = $900 x 4.0933

    FV = $3,684

    Explanation:

    In this case, we will apply the formula of future value of ordinary annuity on the ground that annuity is made quarterly. The annuity per period, interest rate, number of years and number of compounding periods in a year were given with the exception of future value. Thus, the future value becomes the subject of the formula.
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