Answer:
$1,269.05
Explanation:
An ordinary annuity is an annuity that is payment can is made at the end of each period.
For each period, the future value (FV) can be calculated as follows:
FV = P × (1 + r)^n ........................... (1)
Where P = amount of payment
r = periodic interest interest rate
n = period in reference
From the calculation, FV for each year can be calculated using equation (1) as follows:
Year 1 FV:
P = $250
r = 8% = 0.08
n = 1
FV = $250 × (1 + 0.08)^1 = $250 × 1.0800 = $270.00
Year 2 FV:
P = $250
r = 8% = 0.08
n = 2
FV = $250 × (1 + 0.08)^2 = $250 × 1.1664 = $291.60
Year 3 FV:
This is equal to zero because it is omitted.
Year 4 FV:
P = $250
r = 8% = 0.08
n = 4
FV = $250 × (1 + 0.08)^4 = $250 × 1.3605 = $340.12
Year 5 FV:
P = $250
r = 8% = 0.08
n = 5
FV = $250 × (1 + 0.08)^5 = $250 × 1.4693 = $367.33
FV for 5 years = $270.00 + $291.60 + 0 + $340.12 + $367.33 = $1,269.05
Therefore, the future or compound value of a $250, five-year ordinary annuity at 8 percent annual interest if the payment at the end of year 3 is omitted is $1,269.05.
