Which of the following is the formula for the future value of an ordinary annuity, where \(PMT\) is the periodic payment, \(r\) is the interest rate per period, and \(n\) is the number of periods?

• A. \(FV = PMT \times \dfrac{(1 + r)^n - 1}{r}\)
• B. \(FV = PMT \times \dfrac{1 - (1 + r)^{-n}}{r}\)
• C. \(FV = PV \times \dfrac{(1 + r)^n - 1}{r}\)
• D. \(FV = PV \times (1 + r)^n\)

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of an ordinary annuity. An ordinary annuity is a series of equal payments made at the end of each period over a specified number of periods.
2. Step 2: Recall the formula for the future value of an ordinary annuity. The future value represents the total value of all payments compounded at the interest rate over the number of periods.
3. Step 3: The correct formula for the future value of an ordinary annuity is: FV = PMT × ( (1 + r)^n - 1 ) / r. Here, PMT is the periodic payment, r is the interest rate per period, and n is the number of periods.
4. Step 4: Compare the given options to identify the correct formula. The correct formula matches the first option: FV = PMT × ( (1 + r)^n - 1 ) / r.
5. Step 5: Note that the other formulas provided in the options are either for different financial calculations (e.g., present value of an annuity) or are incorrect representations of the future value formula.