   Chapter 12.II, Problem 2RE ### 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

# Use Table 12-2 to calculate the present value of the following ordinary annuities. Annuity Payment Time Nominal Interest Present Value Payment Frequency Period (years) Rate (%) Compounded of the Annuity 2. $2,000 every year 20 7 annually To determine To calculate: The present value of ordinary annuities where annuity payment is$2,000, frequency of payment is 1 year, time duration is 20 years, nominal rate of return is 7% and interest is compounded annually.

Explanation

Given Information:

Annuity payment is $2,000, frequency of payment is 1 year, time duration is 20 years, nominal rate of return is 7% and interest is compounded annually. Formula used: Steps for calculating the present value of ordinary annuity are: Step1: The interest rate per period is first determined. Step2: Next determine the number of periods of the annuity. Step3: Now use the table 12-2 in order to locate the present value table by using the intersection of the rate column and period column. Step4: Finally calculate the present value of the ordinary annuity. The formula to compute the future value of ordinary annuity is, Present Value=Ordinary annuity table factor×Annuity payment Calculation: Consider that Annuity payment is$2,000, frequency of payment is 1 year, time duration is 20 years, nominal rate of return is 7% and interest is compounded semiannually.

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

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