What is the future value of a 5-yr ordinary annuity that promises to pay you $300 each year? Interest is 7%.?

Question

Can anyone tell me what the future value of the annuity is and specifically how to come up with the answer?

Answer 1

$1725.22

You get $300 every year to invest in the bank at 7%.

At the end of year 1, you get $300. You put it in the bank to receive interest.
At the end of year 2, you get $300 to add to the $321 you have in the bank [$300*(1.07)^2].
At the end of year 3, you get $300 to add to the $321 you made from year 2 payout and $343.71 [$300*(1.07)^3] from the year 1 inevstment.
At the end of year 4, you get $300 to add to the $321 you made from the year 3 investment, the $343.71 from the year 2 investment and $367.51[$300 * (1.07)^4] from the year 1 investment.
At the end of year 5, you get $300 to add to the $321 you made from the year 4 investment, the $343.71 you made from the year 3 investment, the $367.51 from the years 2 investment and the $393.24 from the year 1 investment. Add those all up and you get $1,725.22

Answer 2

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