7. When she was 4 years old, Jane's parents set up an annuity for her college education, with the first payment deferred for 14 years until she reached the age of 18. The annuity, rated at 6%, compounded semi-annually, will pay $8,000 at the end of every 6 months for the 4 year period of her college education. a) Find the number of payment periods (N) b. Find the number of deferment periods (k) c) Find the Present Value of this annuity, i.e., what lump sum payment Jane's parents must invest (at t = 0) to start the account (Find A(N,k).
7. When she was 4 years old, Jane's parents set up an annuity for her college education, with the first payment deferred for 14 years until she reached the age of 18. The annuity, rated at 6%, compounded semi-annually, will pay $8,000 at the end of every 6 months for the 4 year period of her college education. a) Find the number of payment periods (N) b. Find the number of deferment periods (k) c) Find the Present Value of this annuity, i.e., what lump sum payment Jane's parents must invest (at t = 0) to start the account (Find A(N,k).
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 8E
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![7. When she was 4 years old, Jane's parents set up an annuity for her college
education, with the first payment deferred for 14 years until she reached the age
of 18. The annuity, rated at 6%, compounded semi-annually, will pay $8,000 at
the end of every 6 months for the 4 year period of her college education.
a) Find the number of payment periods (N)
b. Find the number of deferment periods (k)
c) Find the Present Value of this annuity, i.e., what lump sum payment
Jane's parents must invest (att = 0 ) to start the account (Find A(N,k).
Hint: Use:
A(N,K) = R[1 - (1 + r/M)^(-N)][(1 + r/M)^(-k)
%3D
-; N = Mt(N)[Pay]; k=Mt(defer)
%3D
(r/M)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81092228-5962-43bd-b201-5afee8fff9ef%2Fa6908a32-85fb-4323-81ae-92a984be0457%2Fzxonop9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:7. When she was 4 years old, Jane's parents set up an annuity for her college
education, with the first payment deferred for 14 years until she reached the age
of 18. The annuity, rated at 6%, compounded semi-annually, will pay $8,000 at
the end of every 6 months for the 4 year period of her college education.
a) Find the number of payment periods (N)
b. Find the number of deferment periods (k)
c) Find the Present Value of this annuity, i.e., what lump sum payment
Jane's parents must invest (att = 0 ) to start the account (Find A(N,k).
Hint: Use:
A(N,K) = R[1 - (1 + r/M)^(-N)][(1 + r/M)^(-k)
%3D
-; N = Mt(N)[Pay]; k=Mt(defer)
%3D
(r/M)
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