I am having trouble with the following problem: What will be the value of an annuity in today's dollars if $1000 is to be deposited for 18 years into an account paying 4.5% interest compounded annually? I used the following formula (I'm guessing I've figured something incorrectly) A= P[(1 + r)^m - 1]/r P=1000 r=i/n i=4.5% or .045 n=1 t=18 m=n(t) or 18 1000[1 + .045)^18 - 1/.045 I know this is incorrect because my choices are multiple choice
There are a couple of possibilities. One, your last equation either has a typo or you did it wrong: 1000[1 + .045)^18 - 1/.045 ==> should be [tex]\frac{1000[(1 + .045)^{18} - 1]}{.045}[/tex] The second is that it's not an annuity problem but rather a simple compound interest problem [tex]FV = PV(1+r)^m[/tex]