The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?
A)$2,500
B)$2,000
C)$1,724
D)None of these options

Question

Quizplus · Accepted Answer

Using the formula for the future value of an ordinary annuity:

FV = PMT x [(1 + i)^n - 1]/i

where FV is the future value, PMT is the payment amount, i is the interest rate per period, and n is the number of periods.

We know that FV = $8,000, i = 10%, n = 4, and IF = 4.641. We can rearrange the formula to solve for PMT:

PMT = FV / [(1 + i)^n - 1]/i  = $8,000 / 4.641 = $1,724.18

Therefore, the annual payment should be $1,724.18, which is closest to choice C ($1,724).

The Interest Factor (IF) for the Future Value of an Ordinary