Chapter 12.I, Problem 16RE

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

Solve the following exercises by using formulas.Ordinary Annuities Annuity Payment Time Nominal Interest Future Value Payment Frequency Period (years) Rate (%) Compounded of the Annuity 16. $2,000 every 6 months 3 3.0 semiannually$12,459.10

To determine

To calculate: The future value of ordinary annuity where annuity payment is $2,000, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 3% and interest is compounded semiannually. Explanation Given Information: Annuity payment is$2,000, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 3% and interest is compounded semiannually.

Formula used:

Steps for calculating the future value of an ordinary annuity are:

Step 1: First the interest rate per period for the annuity is calculated.

Step 2: The number of annuity periods should then be determined.

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: Finally future value of the ordinary annuity is calculated.

The formula to compute the future value of ordinary annuity is,

Future Value=Ordinary annuity table factor×Annuity payment

Calculation:

Consider that Annuity payment is \$2,000, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 3% and interest is compounded semiannually.

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

3%2=1

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