Chapter 12, Problem 3AT

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

Use Table 12-1 to calculate the future value of the following annuities due.

Annuity |
Payment |
Time |
Nominal |
Interest |
Future Value |
||||||

Payment |
Frequency |
Period (years) |
Rate (%) |
Compounded |
of the Annuity |
||||||

3. $1,850 | every 6 months | 12 | 10 | semiannually |

To determine

**To calculate:** The future value of annuities due where annuity payment is

Explanation

**Given Information:**

Annuity payment is

**Formula used:**

Steps for calculating the future value of an annuity due are:

Step 1: Calculate the number of periods of the annuity and add one period to total.

Step 2: The interest rate per period must be calculated.

Step 3: Use table 12-1 to locate the ordinary annuity table factor that lies on the intersection of the rate-per period column and number-of-periods row.

Step 4: The number 1.00000 must be subtracted from the ordinary annuity table in order to get the annuity due factor.

Step 5: Finally calculate the future value of the annuity due.

The formula to compute the future value of ordinary annuity is,

**Calculation:**

Consider that annuity payment is

As the interest is compounded semiannually. So, the interest rate period is;

The rate period is

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