Chapter 12, Problem 8AT

### 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 8. $2,000 every 6 months 6 4 semiannually To determine To calculate: The present value of annuities due where annuity payment is$2,000, frequency of payment is 6 months, time duration is 6 years, nominal rate of return is 4% and interest is compounded semiannually.

Explanation

Given Information:

Annuity payment is $2,000, frequency of payment is 6 months, time duration is 6 years, nominal rate of return is 4% and interest is compounded semiannually. Formula used: Steps for calculating the present value of an annuity due are: Step 1: Calculate the number of periods of the annuity and subtract one period to total. Step 2: The interest rate per period must be calculated. Step 3: Use table 12.2 to locate the 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 added to the ordinary annuity table in order to get the annuity due factor. Step 5: Finally calculate the present value of the annuity due. The formula to compute the present value of annuity due is, Present Value=Annuity due table factor×Annuity payment Annuity due table factor=Ordinary annuity table factor+1.00000 Calculation: Consider that annuity payment is$2,000, frequency of payment is 6 months, time duration is 6 years, nominal rate of return is 4% and interest is compounded semiannually.

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

4%2=2%

The rate period is 2%

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