Severson has an annuity due that pays $400 per year for 20 years.What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized.
A)$9,000.00
B)$9,675.00
C)$16,846.35
D)$18,621.01

Question

Quizplus · Accepted Answer

To find the future value of an annuity due, we use the formula for the future value of an annuity due, which is FV = P * [((1 + r)^n - 1) / r] * (1 + r), where P is the payment amount, r is the interest rate per period, and n is the number of periods. Here, P = $400, r = 7.50% or 0.075, and n = 20. Plugging these values into the formula gives us the future value one year after the last cash flow is realized, which calculates to $18,621.01.

Severson Has an Annuity Due That Pays $400 Per Year