Chapter 12, Problem 6AT

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

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

# Use Table 12-2 to calculate the present value of the following annuities due. Annuity Payment Time Nominal Interest Present Value Payment Frequency Period (years) Rate(%) Compounded of the Annuity 6. $125,000 every 3 months 3 6 quarterly To determine To calculate: The present value of ordinary annuities where annuity payment is$125,000, frequency of payment is 3 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded quarterly.

Explanation

Given Information:

Annuity payment is $125,000, frequency of payment is 3 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded quarterly. Formula used: Steps for calculating the present value of an ordinary annuity are: Step1: First the interest rate per period for the annuity is calculated. Step2: The number of annuity periods should then be determined. Step 3: Use table 12-2 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: Finally present value of the ordinary annuity is calculated. The formula to compute the present value of ordinary annuity is, Present Value=Ordinary annuity table factor×Annuity payment Calculation: Consider that annuity payment is$125,000, frequency of payment is 3 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded quarterly.

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

6%4=1

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