5 Find the Value of an Annuity
Solve the problem. Round to the nearest dollar if needed.
-Laura invests $225 each quarter in a fixed-interest mutual fund paying annual interest of 5.5% compounded quarterly. How much will her account have in it at the end of 10 years?
A)$11,893
B)$2897
C)$35,735
D)$12,022

Question

Quizplus · Accepted Answer

The future value of an annuity can be calculated using the formula $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $P$ is the payment per period, $r$ is the interest rate per period, and $n$ is the total number of payments. Here, $P = $225$, $r = 5.5\% / 4 = 0.01375$ (since the interest is compounded quarterly), and $n = 10 \times 4 = 40$ (for 10 years with quarterly payments). Plugging these values into the formula gives a future value close to $11,893, hence option A is correct.