Question

A service contract for a video projection system costs $90 a year. You expect to use the system for three years. Instead of buying the service contract, what would be the future value of these annual amounts after three years if you earn 5 percent on your savings

Answer 1

$245.09

Step-by-step explanation:

A service contract for a video projection system costs $90 a year. You expect to use the system for three years.

Instead of buying the service contract, the future value of these annual amounts after three years if you earn 5 percent on your savings will be:

PV

Ordinary Annuity

​ =C×[ ((1−(1+i) ^−n ) / i ]

where

n = number of years = 3

i = interest rate = 5%

Present Value of the annuity = 90 x [ ((1 - (1+0.05)^-3) / 0.05] = $245.09