   Chapter 12.II, Problem 14RE ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

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

# Solve the following exercises by using Table 12-2.Run Sample is the grand prize winner in a college tuition essay contest awarded through a local organization’s scholarship fund. The winner receives $2,000 at the beginning of each year for the next 4 years. How much should be invested at 7% interest compounded annually to award the prize? To determine To calculate: The amount that should be invested by a local organization at 7% interest compounded annually to award the prize to the winner where the winner gets$2,000 in the beginning of each year for the next 4 years.

Explanation

Given Information:

Annuity payment to be received in the beginning of each year is $2,000, frequency of payment is 1 year, time duration is 4 years, nominal rate of return is 7% and interest is compounded annually. Formula used: 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 to be received in the beginning of each year is$2,000, frequency of payment is 1 year, time duration is 4 years, nominal rate of return is 7% and interest is compounded annually.

The rate period is 7%(7%÷1 period per year).

The number of periods is 3(4 years×1 period per year1)

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