1. Find Future value factor for Interest rate i = 10%, Compounded (n) = 3, using Ordinary Annuity method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
Future value factor of Ordinary Annuity
`FVF=[((1+i)^n-1)/(i)]`
`=[((1+0.1)^3-1)/(0.1)]`
`=[((1.1)^3-1)/(0.1)]`
`=[(1.33-1)/(0.1)]`
`=[(0.33)/(0.1)]`
`=3.31`
2. Find Future value factor for Interest rate i = 5%, Compounded (n) = 5, using Ordinary Annuity method
Solution:
`i=5%=0.05` per year (Interest rate)
`n=5` years (Number of periods)
Future value factor of Ordinary Annuity
`FVF=[((1+i)^n-1)/(i)]`
`=[((1+0.05)^5-1)/(0.05)]`
`=[((1.05)^5-1)/(0.05)]`
`=[(1.2763-1)/(0.05)]`
`=[(0.2763)/(0.05)]`
`=5.5256`
This material is intended as a summary. Use your textbook for detail explanation.
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