Leberland Corporation deposits $125,000 every year in a savings account (beginning at the end of the current year) for the next six years so that it can purchase a new piece of machinery at the end of six years. The interest rate is 6%. How much money will Leberland Corporation have at the end of six years? Use the future value of an ordinary annuity factor table shown below to derive your answer.
Excerpt from future value of an ordinary annuity factor table
$$\begin{array} { | c | c | c | c | c | }
\hline \text { Periods } & 3 \% & 4 \% & 5 \% & 6 \% \
\hline 1 & 1.00000 & 1.00000 & 1.00000 & 1.00000 \
\hline 2 & 2.03000 & 2.04000 & 2.05000 & 2.06000 \
\hline 3 & 3.09090 & 3.12160 & 3.15250 & 3.18360 \
\hline 4 & 4.18363 & 4.24646 & 4.31013 & 4.37462 \
\hline 5 & 5.30914 & 5.41632 & 5.52563 & 5.63709 \
\hline 6 & 6.46841 & 6.63298 & 6.80191 & 6.97532 \
\hline 7 & 7.66246 & 7.89829 & 8.14201 & 8.39384 \
\hline 8 & 8.89234 & 9.21423 & 9.54911 & 9.89747 \
\hline 9 & 10.15911 & 10.58280 & 11.02656 & 11.49132 \
\hline 10 & 11.46338 & 12.00611 & 12.57789 & 13.18079 \
\hline
\end{array}$$

Question

Leberland Corporation deposits $125,000 every year in a savings account (beginning at the end of the current year) for the next six years so that it can purchase a new piece of machinery at the end of six years. The interest rate is 6%. How much money will Leberland Corporation have at the end of six years? Use the future value of an ordinary annuity factor table shown below to derive your answer.
Excerpt from future value of an ordinary annuity factor table
$$\begin{array} { | c | c | c | c | c | } 
\hline \text { Periods } & 3 \% & 4 \% & 5 \% & 6 \% \
\hline 1 & 1.00000 & 1.00000 & 1.00000 & 1.00000 \
\hline 2 & 2.03000 & 2.04000 & 2.05000 & 2.06000 \
\hline 3 & 3.09090 & 3.12160 & 3.15250 & 3.18360 \
\hline 4 & 4.18363 & 4.24646 & 4.31013 & 4.37462 \
\hline 5 & 5.30914 & 5.41632 & 5.52563 & 5.63709 \
\hline 6 & 6.46841 & 6.63298 & 6.80191 & 6.97532 \
\hline 7 & 7.66246 & 7.89829 & 8.14201 & 8.39384 \
\hline 8 & 8.89234 & 9.21423 & 9.54911 & 9.89747 \
\hline 9 & 10.15911 & 10.58280 & 11.02656 & 11.49132 \
\hline 10 & 11.46338 & 12.00611 & 12.57789 & 13.18079 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The future value of an ordinary annuity is calculated as follows:FV = P * [ (1 + r)^n - 1 ] / rwhere:P = the annual paymentr = the interest raten = the number of yearsIn this case, P = $125,000, r = 6%, and n = 6. Plugging these values into the formula, we get:FV = $125,000 * [ (1 + 0.06)^6 - 1 ] / 0.06= $125,000 * [ 1.42331 - 1 ] / 0.06= $125,000 * 0.42331 / 0.06= $871,915Therefore, the correct answer is A) $871,915.

Leberland Corporation Deposits $125,000 Every Year in a Savings Account