a.
To calculate:
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
a.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
Substitute $400 for C, 10% for i and 10 years for n in equation (I).
Hence, the future value of
b.
To calculate: Future value of
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
b.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
Substitute $200 for C, 5% for i and 5 years for n in equation (I)
The future value of
c.
To calculate: Future value of
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
c.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
The formula to calculate future value is,
Substitute $700 for C, 0% for i and 4 years for n.
The future value of
d.a.
To calculate: Future value of
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
d.a.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
The formula to calculate future value of annuity due is,
Here,
- FV is future value of annuity.
- C is the monthly payment.
- i is interest rate.
- n is number of payments.
Substitute $400 for C, 10% for i and 10 years for n in equation (II).
The future value of
b.
To calculate: Future value of
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
b.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
Substitute $200 for C, 5% for i and 5 years for n in equation (II).
The future value of
c.
To calculate: Future value of
Annuity: It is an agreement under which a person pays the lump sum payment or number of small transactions and in return, he gets the amount at later date or upon maturity. The purpose of annuity is not to break the flow of income after retirement.
c.
Explanation of Solution
Solution:
The formula to calculate value of
Here,
- FV is future value.
- C is monthly payment.
- i is interest rate.
- n is number of payments.
The formula to calculate future value is,
Substitute $700 for C, 0% for i and 4 years for n.
The future value of
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Chapter 5 Solutions
Fundamentals of Financial Management: Concise - Text Only
- Value of an Annuity Using the appropriate tables, solve each of the following. Required: 1. Beginning December 31, 2020, 5 equal withdrawals are to be made. Determine the equal annual withdrawals if 30,000 is invested at 10% interest compounded annually on December 31, 2019. 2. Ten payments of 3,000 are due at annual intervals beginning June 30, 2020. What amount will be accepted in cancellation of this series of payments on June 30, 2019, assuming a discount rate of 14% compounded annually? 3. Ten payments of 2,000 are due at annual intervals beginning December 31, 2019. What amount will be accepted in cancellation of this series of payments on January 1, 2019, assuming a discount rate of 12% compounded annually?arrow_forwardPresent Value of an Annuity Ralph Benke wants to make 8 equal semiannual withdrawals of 8,000 from a fund that will earn interest at 11 % compounded semiannually. Required: How much would Ralph have to invest on: 1. January 1, 2019, if the first withdrawal is made on July 1, 2019 2. July 1, 2019, if the first withdrawal is made on July 1, 2019 3. January 1, 2019, if the first withdrawal is made on January 1, 2022arrow_forwardYou want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuityarrow_forward
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