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You decide to save ₹1,000 at the end of each year for your child's college fund. If the annual interest rate is 5%, what is the future value of this annuity after 12 years?

Question

You decide to save ₹1,000 at the end of each year for your child's college fund. If the annual interest rate is 5%, what is the future value of this annuity after 12 years?

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Solution

To calculate the future value of the annuity, we can use the formula for the future value of an ordinary annuity:

FV = P * ((1 + r)^n - 1) / r

Where: FV = Future Value P = Payment amount per period (₹1,000) r = Annual interest rate (5% or 0.05) n = Number of periods (12 years)

Plugging in the values into the formula, we get:

FV = 1000 * ((1 + 0.05)^12 - 1) / 0.05

Now, let's calculate the future value step by step:

  1. Calculate the value inside the parentheses: (1 + 0.05)^12 = 1.05^12 = 1.795856

  2. Subtract 1 from the value inside the parentheses: 1.795856 - 1 = 0.795856

  3. Divide the result by the interest rate: 0.795856 / 0.05 = 15.91712

  4. Multiply the result by the payment amount: 15.91712 * 1000 = ₹15,917.12

Therefore, the future value of this annuity after 12 years would be ₹15,917.12.

This problem has been solved

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