Chapter 12.I, Problem 14RE

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

Solve the following exercises by using Table 12-1.

Jorge Otero has set up an annuity due with the United Credit Union. At the beginning of each month. $170 is electronically debited from his checking account and placed into a savings account earning 6% interest compounded monthly. What is the value of Jorge's account after 18 months?

To determine

**To calculate:** The value of Jorge’s account after 18 months where

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 monthly. So, the interest rate period is;

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