Question

A common error made when solving a future value of an annuity problem is: Multiple Choice Using factor tables to help solve the problem. Dividing the annual deposit by the number of years before calculating the problem. Using a financial calculator to help solve the problem. Multiplying the number of years and the interest rate before calculating the problem. Multiplying the annual deposit and the number of years before calculating the problem.

Answer 1

Answer:

Multiplying the annual deposit and the number of years before calculating the problem.

Explanation:

An annuity can be defined as a sequence of payment that is typically made at equal intervals i.e at specific period of time.

Basically, annuity can be calculated using the compound interest formula. It is given by the mathematical expression;

$A = P(1 + \frac{r}{n})^{nt}$

Where;

A is the future value.

P is the principal or starting amount.

r is annual interest rate.

n is the number of times the interest is compounded in a year.

t is the number of years for the compound interest.

Additionally, the time period between each payment is called payment period.

The term of an annuity refers to the time from the beginning of the first payment made by an individual to the end of the last payment period.

A common error made when solving a future value of an annuity problem is multiplying the annual deposit and the number of years before calculating the problem.