Derive the formula for the future value of ordinary annuity

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Reference no: EM132745103

Complete both parts of this problem to find the future value of an annuity with $450 made at the end of each year for 5 years earning 4% interest, compounded annually.

Problem a) Derive the formula for the future value of an ordinary annuity with $1 payments, 5 payments, and 4% interest per payment period, exactly as we did in class.

step 1: Write the bucket method expression for the future value of an ordinary annuity with 5 deposits of $1 each earning 4% periodic interest which is equal to FV . This has been done for you below.
step 2: Above the previous expressions, write the result of multiplying the expression by (1.04) term by term. The right hand side of this equation has been included below.
step 3: Subtract the two equations as indicated below.
step 4: Solve the resulting expression for FV , showing all algebraic steps.

= (1.04)FV-$1(1.04)4 + $1(1.04)3 + $1(1.04)2 + $1(1.04) + $1= FV

Reference no: EM132745103

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