   Chapter 12, Problem 3AT ### 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

# 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$1,850, frequency of payment is 6 months, time duration is 12 years, nominal rate of return is 10% and interest is compounded semiannually.

Explanation

Given Information:

Annuity payment is $1,850, frequency of payment is 6 months, time duration is 12 years, nominal rate of return is 10% and interest is compounded semiannually. 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, Future Value=Annuity due table factor×Annuity payment Annuity due table factor=Ordinary annuity table factor1.00000 Calculation: Consider that annuity payment is$1,850, frequency of payment is 6 months, time duration is 12 years, nominal rate of return is 10% and interest is compounded semiannually.

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

10%2=5%

The rate period is 5%

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