Yahoo Answers is shutting down on May 4th, 2021 (Eastern Time) and the Yahoo Answers website is now in read-only mode. There will be no changes to other Yahoo properties or services, or your Yahoo account. You can find more information about the Yahoo Answers shutdown and how to download your data on this help page.

Compute the future value...?

Compute the future value at the end of the year 32 of $150 deposited every month for 22 years (with the first deposit made one month from today) into an account that pays 6 percent p.a. with semi-annual compunding.

OK...here is where I'm stumped. I understand that this is a 2 part question...the first part being an ordinary annuity for 22 years and the second part being a future value of a lump sum for 10 years. It is the ordinary annuity that is troubling me.

Here is what I entered in my finance calculator:

N=44 (22 years * 2 as the interest is compounded semi-annually)

PMT=150 * 6 = 900 (monthly payment * 6 as this is compounded only every six months so we are indiffernet between paying 150 a month or 900 every 6 months)

I/Y=3% (6p.a. / 2 as it is semi-annually compounded)

FV=?

Computed FV = 80,143.56820

Is this accurate or did I put the wrong information in for N and I/Y?

Update:

Note..I am only trying to figure out the FV of the ordinary annuity (not the lump sum from year 23-32).

4 Answers

Relevance
  • 1 decade ago
    Favorite Answer

    Becareful of the semi-annual compounding. That is where your calculations are wrong.

    What you should do is convert the semiannual 6% into an annual rate, which is 1.03 x 1.03 = 1.0609 ---> 6.09%

    Based on this, your I/Y should be 6.09/12 = 0.5075%

    N = 22 x 12 = 264

    PMT remains at 150

  • 1 decade ago

    Yes, that's the right answer.

  • Anonymous
    1 decade ago

    Looks good to me -- it passes sanity check, although I have not run the numbers. I have no quarrel with your analysis.

  • 1 decade ago

    jacektha's answer looks ok to me... ?

Still have questions? Get your answers by asking now.