Chapter 12.II, 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 Table 12-2.Analysis at Sky West Airlines did a 3-year projection of expenses. They calculated that the company will need $15,800 at the beginning of each 6-month period to buy fuel, oil, lube, and parts for aircraft operations and maintenance. Sky West can get interest compounded semiannually from its bank. How much should Sky West deposit now to support the next 3 years of operations and maintenance expenses? To determine To calculate: The amount that Sky West Airlines should deposit now to support the operations and maintenance expenses where regular payment at the beginning of the year is$15,800, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded semiannually.

Explanation

Given Information:

Sky West Airlines support the operations and maintenance expenses where regular payment at the beginning of the year is $15,800, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded semiannually. 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 is$15,800, frequency of payment is 6 months, time duration is 3 years, nominal rate of return is 6% and interest is compounded semiannually.

The rate period is 3%(6%÷2 period per year).

The number of periods is 5( 3years×2 period per year-1)

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