Chapter 12.II, Problem 20RE

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

Present value of an annuity due AnnuityPayment PaymentFrequency TimePeriod (yrs) Nominal Rate ( % ) InterestCompounded Present Value of the Annuity 20. $1,100 every year 5 5.8 annually$4,929.14

To determine

To calculate: The present value of an annuity due, where annuity payment is $1,100, the frequency of payment is 1 year, the time duration is 5 years, the nominal rate of return is 5.8% and interest is compounded annually. Explanation Given Information: Annuity payment is$1,100, the frequency of payment is 1 year, the time duration is 5 years, the nominal rate of return is 5.8% and interest is compounded annually.

Formula used:

The formula to compute the present value of an annuity due is,

PV=Pmt×1(1+i)ni×(1+i)

Where, PV is present value, Pmt is annuity payment, i is interest rate per period and n is number of periods.

Calculation:

Consider the provided information,

Annuity payment is \$1,100, the frequency of payment is 1 year, the time duration is 5 years, the nominal rate of return is 5.8% and interest is compounded annually.

Now, the interest rate period is 5.8%(5.8%÷1 period per year).

The number of periods is 5(5 years×1 period per year).

Now, substitute n=5, i=0

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