You expect to make equal payments of $ 7390.00 at the end of each semi-annualperiod over the next 9 years (ordinary annuity) into a new bank account earninginterest at 4 %.What is the future value of the annuity stream, if the frequency of compounding is 2times per year?(Answer to the nearest cent. i.e. one thousand dollars would be entered 1000.00)

Answered: What is the future value of the annuity…

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What is the future value of the annuity stream, if the frequency of compounding is 2 times per year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 31P

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Concept explainers

Types of Insurance Contract

Insurance is a contract wherein an individual or entity gets financial protection from the insurance company for any damages or losses incurred. The individual or entity is called the insured, whereas the insurance company is called the insurer. The insured and the insurer enter a legal contract for a fixed term called the insurance term, and the contract is called an insurance policy.

Question

You expect to make equal payments of $ 7390.00 at the end of each semi-annual
period over the next 9 years (ordinary annuity) into a new bank account earning
interest at 4 %.
What is the future value of the annuity stream, if the frequency of compounding is 2
times per year?
(Answer to the nearest cent. i.e. one thousand dollars would be entered 1000.00)

Expert Solution

Step 1

Future Value of Annuity:

It refers to the future worth of the periodic payments made at the end of each period.

Future value is calculated by compounding these periodic payments with an interest rate. The higher the rate of interest, the higher the future value of the annuity will be.

The concept of future value is used by many investors to know their portfolio worth.

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