Lance Rice has decided to invest $1,200 quarterly for eight years in an ordinary annuity at 4%. The total cash value of the annuity at end of year 8 is (use the tables in the handbook):

Question

Quizplus · Accepted Answer

Using the formula for the future value of an ordinary annuity:
FV = PMT x ((1 + r)^n - 1) / r
where PMT is the quarterly payment, r is the interest rate per quarter, and n is the number of quarters, we can calculate the total cash value of the annuity at the end of year 8:

PMT = $1,200
r = 4% / 4 = 0.01 (since the interest rate is given annually and we need to convert to quarterly)
n = 8 x 4 = 32 (since there are 8 years and 4 quarters per year)

FV = $1,200 x ((1 + 0.01)^32 - 1) / 0.01
FV = $1,200 x 35.6483
FV = $42,777.96

Therefore, the closest option is B) $44,992.92, which is the answer that is closest to $42,777.96.

Lance Rice Has Decided to Invest $1,200 Quarterly for Eight