   Chapter 12, Problem 26AT ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Present value of an ordinary annuity Annuity Payment Time Nominal Interest Present Value Payment Frequency Period (years) Rate (%) Compounded of the Annuity 26. $375 every 6 months 2 3 semiannually To determine To calculate: The present value of ordinary annuities where annuity payment is$375, the frequency of payment is 6 months, the time duration is 2 years, the nominal rate of return is 3% and interest is compounded semiannually.

Explanation

Given Information:

Annuity payment is $375, the frequency of payment is 6 months, the time duration in 2 years, the nominal rate of return is 3% and interest is compounded semiannually. Formula used: The formula for future value of the ordinary annuity is, FV=Pmt×(1+i)n1i Here, FV is the future value, Pmt is the Annuity payment, i is the interest rate per period (nominal rate ÷ periods per year) and n is the number of periods (years × periods per year). Calculation: Consider that annuity payment is$375, the frequency of payment is 6 months, the time duration in 2 years, the nominal rate of return is 3% and interest is compounded semiannually.

The rate period is 1.5%(3%÷2 period per year).

The number of periods is 4(2 years×2 period per year).

Substitute 4 for a number of periods, 0

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