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Annuity compounded annually

  1. Sep 28, 2005 #1
    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

    i=4.5% or .045
    m=n(t) or 18

    1000[1 + .045)^18 - 1/.045

    I know this is incorrect because my choices are multiple choice
  2. jcsd
  3. Sep 28, 2005 #2


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    Homework Helper

    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]
  4. Sep 29, 2005 #3
    Thank you very much.
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