Chapter 5, Problem 14P

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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,

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.

Ch-5 P-3PCh-5 P-4PCh-5 P-5PCh-5 P-6PCh-5 P-7PCh-5 P-8PCh-5 P-9PCh-5 P-10PCh-5 P-11PCh-5 P-12PCh-5 P-13PCh-5 P-14PCh-5 P-15PCh-5 P-16PCh-5 P-17PCh-5 P-18PCh-5 P-19PCh-5 P-20PCh-5 P-21PCh-5 P-22PCh-5 P-23PCh-5 P-24PCh-5 P-25PCh-5 P-26PCh-5 P-27PCh-5 P-28PCh-5 P-29PCh-5 P-30PCh-5 P-31PCh-5 P-32PCh-5 P-33PCh-5 P-34PCh-5 P-35PCh-5 P-36PCh-5 P-37PCh-5 P-38PCh-5 P-39PCh-5 P-40PCh-5 P-41SPCh-5 P-42IC

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