Chapter 12.II, Problem 6RE

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

Use Table 12-2 to calculate the present value of the following annuities due. Annuity Payment Time Nominal Interest Present Value Payment Frequency Period (years) Rate (%) Compounded of the Annuity 6. $1,400 every year 10 11 annually$9,151.87

To determine

To calculate: The present value of annuities due, where annuity payment is $1,400, frequency of payment is 1 year, time duration is 10 years, nominal rate of return is 11% and interest is compounded annually. Explanation Given Information: Annuity payment is$1,400, frequency of payment is 1 year, time duration is 10 years, nominal rate of return is 11% and interest is compounded annually.

Also, use the table 12-2 on page 382.

Formula used:

The following steps are required to find the present value:

Step 1: Compute the number of periods of the annuity and then subtract one period from the total number of periods.

Step 2: Compute the rate of interest per period as,

Rate of interest=Nominal ratePeriods per year

Step 3: Use table 12-2, locate the factor of table at the intersection of the rate-per-period column and the number-of-periods row.

Step 4: Add 1.00000 in the ordinary annuity table factor to find the annuity due table factor.

Annuity due table factor=Ordinary annuity table factor+1.00000

Step 5: Compute the present value of annuity due as,

Present Value=Annuity due table factor×Annuity payment

Calculation:

Consider the provided information,

Annuity payment is \$1,400, frequency of payment is 1 year, time duration is 10 years, nominal rate of return is 11% and interest is compounded annually.

Now, the rate period is 11%(11%÷1 period per year)

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