Chapter 5, Problem 14P

### Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Chapter
Section

### Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

# FUTURE VALUE OF AN ANNUITY Find the future values of these ordinary annuities. Compounding occurs once a year. a. $400 per year for 10 years at 10% b.$200 per year for 5 years at 5% c. $400 per year for 5 years at 0% d. Rework Parts a, b, and c assuming they are annuities due. a. Summary Introduction To calculate: Future value of annuity a)$400 per year for 10 years at 10% b) $200 per year for 5 years at 5% c)$400 per year for 5 years at 0% d) Rework part a ,b and c as they are due.

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.

Explanation

Solution:

The formula to calculate value of annuity is,

FVAnnuity=C×((1+i)n-1i) .(I)

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) b. Summary Introduction To calculate: Future value of annuity a)$400 per year for 10 years at 10% b) $200 per year for 5 years at 5% c)$400 per year for 5 years at 0% d) Rework part a ,b and c as they are due.

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.

Summary Introduction

To calculate: Future value of annuity a) $400 per year for 10 years at 10% b)$200 per year for 5 years at 5% c) $400 per year for 5 years at 0% d) Rework part a ,b and c as they are due. 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. Summary Introduction To calculate: Future value of annuity a)$400 per year for 10 years at 10% b) $200 per year for 5 years at 5% c)$400 per year for 5 years at 0% d) Rework part a ,b and c as they are due.

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.

Summary Introduction

To calculate: Future value of annuity a) $400 per year for 10 years at 10% b)$200 per year for 5 years at 5% c) $400 per year for 5 years at 0% d) Rework part a ,b and c as they are due. 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. Summary Introduction To calculate: Future value of annuity a)$400 per year for 10 years at 10% b) $200 per year for 5 years at 5% c)$400 per year for 5 years at 0% d) Rework part a ,b and c as they are due.

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.

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