Chapter 12.I, Problem 10RE

### 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 12-1 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 10. $4.400 every 6 months 8 6 Semiannually______________ To determine To calculate: The future value of annuity due where annuity payment is$4,400, frequency of payment is 6 months, time duration is 8 years, nominal rate of return is 6% and interest is compounded semiannually.

Explanation

Given Information:

Annuity payment is $4,400, frequency of payment is 6 months, time duration is 8 years, nominal rate of return is 6% and interest is compounded semiannually. Formula used: Steps for calculating the future value of an annuity due are: Step1 First the periods of the annuity of must be calculated. Step2 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 column and period rows. Step 4 1.00000 must be subtracted from the ordinary annuity table in order to get the annuity due factor. Step5 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$4,400, frequency of payment is 6 months, time duration is 8 years, nominal rate of return is 6% and interest is compounded semiannually.

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

6%2=3%

The rate period is 3%

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