Chapter 12.II, Problem 7RE

### 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. AnnuityPayment Payment Frequency TimePeriod (years) NominalRate(%) InterestCompounded Present Value of the Annuity 7. $2,500 every 3 months 5 4 quarterly To determine To calculate: The present value of annuities due, where annuity payment is$2,500, frequency of payment is 3 months, time duration is 5 years, nominal rate of return is 4% and interest is compounded quarterly.

Explanation

Given Information:

Annuity payment is $2,500, frequency of payment is 3 months, time duration is 5 years, nominal rate of return is 4% and interest is compounded quarterly. 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$2,500, frequency of payment is 3 months, time duration is 5 years, nominal rate of return is 4% and interest is compounded quarterly.

Now, the rate period is 1%(4%÷4 period per year)

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