Question

find the future value of an ordinary annuity of $60 paid at the end of each quarter for 3 years, if interest is earned at a rate of 4%, compounded quarterly.

Answer 1

The future value of an ordinary annuity of $60 paid at the end of each quarter for 3 years, if interest is earned at a rate of 4%, compounded quarterly will be 907.2$

What is Compounding?

Compounding is the method through which interest is added to both the principle balance already in place and the interest that has already been paid. Thus, compounding can be thought of as interest on interest, with the result that returns on interest are magnified over time, or the so-called "magic of compounding." After a year, you would receive $10 in interest if you deposited $1,000 into an account with a 1% annual interest rate. Compound interest allowed you to earn 1 percent on $1,010 in Year Two, which amounted to $10.10 in interest payments for the year.

Hence, The future value of an ordinary annuity of $60 paid at the end of each quarter for 3 years, if interest is earned at a rate of 4%, compounded quarterly will be 907.2$

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