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Gr12 Mathematics: Ch 3.3 Future Value Annuities

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Gr12 Mathematics: Ch 3.3 Future Value Annuities

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Questions and Answers

What is the primary characteristic of a future value annuity?

It involves making regular payments into an account that earns compound interest. (correct)

It involves a single lump sum payment at the end of the investment period.

It has a fixed interest rate that never changes.

It earns simple interest over the investment period.

What does the variable 'F' represent in the future value of an annuity formula?

Number of periods

Payment amount per period

Interest rate per period

Future value of the annuity (correct)

What is the formula for calculating the future value of an annuity?

$F = x \* [(1 + i)^n - 1]$

$F = x \* [(1 + i)^n - 1] / i$ (correct)

$F = x \* (1 + i)^n$

$F = x \* [(1 + i)^n - 1] / i^2$

What is the result of adding up all the payments made into an annuity account over time?

The sum of all payments Signup and view all the answers

What is the purpose of the interest rate 'i' in the future value of an annuity formula?

To adjust for the effect of compound interest Signup and view all the answers

If an annuity has a payment amount of $500 per quarter, and an interest rate of 2% per quarter, how would you calculate the future value of this annuity after 10 years?

Use the formula F = 500[(1 + 0.02)^40 - 1] / 0.02 Signup and view all the answers

What happens to the future value of an annuity if the payment amount increases, but the interest rate remains constant?

The future value of the annuity increases Signup and view all the answers

An annuity has a payment amount of $1,000 per year, and an interest rate of 5% per year. If the interest rate increases to 6% per year, what happens to the future value of the annuity?

The future value of the annuity increases Signup and view all the answers

What is the relationship between the number of periods (n) and the future value of an annuity?

As the number of periods increases, the future value of the annuity increases Signup and view all the answers

If an annuity has a payment amount of $200 per month, and an interest rate of 3% per year, what would you need to do to calculate the future value of this annuity after 5 years?

Convert the interest rate to a monthly rate, and use the formula F = 200[(1 + 0.025/12)^(12*5) - 1] / (0.025/12) Signup and view all the answers