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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

FUTURE VALUE OF AN ANNUITY Find the future values of these ordinary annuities. Compounding occurs once a year.

  1. a. $500 per year for 8 years at 14%
  2. b. $250 per year for 4 years at 7%
  3. c. $700 per year for 4 years at 0%
  4. d. Rework parts a, b, and c assuming they are annuities due.

a.

Summary Introduction

To calculate: Future value of annuity of $500 for a year for 8 years at 14%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

Explanation

Given,

The annuity is $500 per year.

The interest rate is 14% or 0.14.

The numbers of years are 8 years.

The formula to calculate value of annuity is equation (I).

    FVAnnuity=C×((1+i)n-1i)

Here,

  • FV stands for future value.
  • C is for monthly payment.
  • I is interest rate.
  • n stands for no of payments.

Substitute $500 for C, 0

(b)

Summary Introduction

To calculate: Future value of annuity of $250 for a year for 4 years at 7%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

(c)

Summary Introduction

To calculate: Future value of annuity of $700 for a year for 4 years at 0%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

(d)

Summary Introduction

To rework: Part a, b and c as they are due.

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

d.a.

Summary Introduction

To calculate: Future value of annuity of $500 for a year for 8 years at 14%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

d.b

Summary Introduction

To calculate: Future value of annuity of $250 for a year for 4 years at 7%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

d.c

Summary Introduction

To calculate: Future value of annuity of $700 for a year for 4 years at 0%

Annuity:

It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is   not to break the flow of income after retirement.

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