Chapter A3, Problem 21E

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4th Edition

Jay Rich + 1 other

ISBN: 9781337690881

Textbook Problem

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Devon National Bank pays 8% interest compounded weekly (0.154% per week) on savings accounts. The bank has asked your help in preparing a table to show potential customers the number of dollars that will be available at the end of 10-, 20-, 30-, and 40-week periods during which there are weekly deposits of $1, S5, $10, or $50. The following data are available:

**Required:**

Complete a table similar to the one below. (Note: Round answers to two decimal places.)

To determine

**Introduction:**

Compound interest considers the time value of money. Future value of annuity means the value of annual cash flows along with the compound interest on a specific date.

**To complete:**

The table that shows future value of depositing various amounts for specified period.

Explanation

**Given:**

Length of Annuity |
Future Value of Annuity (where i = 0.1554% per week) |

10 weeks | 10.0696 |

20 weeks | 20.2953 |

30 weeks | 30.6796 |

40 weeks | 41.2250 |

**Calculations:**

Compounded Weekly,

Interest Rate = 0.154%

FV = Future Value

**(1a)** Annual Cash Flow (f) = $1
No. of periods = 10

FV = (f)(FV of an annuity, 10 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($1)(10.0696)

**FV = $10.07**

**(1b)** Annual Cash Flow (f) = $1
No. of periods = 20

FV = (f)(FV of an annuity, 20 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($1)(20.2953)

**FV = $20.30**

**(1c)** Annual Cash Flow (f) = $1

No. of periods = 30

FV = (f)(FV of an annuity, 30 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($1)(30.6796)

**FV = $30.68**

**(1d)** Annual Cash Flow (f) = $1

No. of periods = 40

FV = (f)(FV of an annuity, 40 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($1)(41.2250)

**FV = $41.23**

**(2a)** Annual Cash Flow (f) = $5
No. of periods = 10

FV = (f)(FV of an annuity, 10 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($5)(10.0696)

**FV = $50.35**

**(2b)** Annual Cash Flow (f) = $5
No. of periods = 20

FV = (f)(FV of an annuity, 20 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($5)(20.2953)

**FV = $101.48**

**(2c)** Annual Cash Flow (f) = $5

No. of periods = 30

FV = (f)(FV of an annuity, 30 periods, 0.154%)

Using the given â€˜FV of an annuity tableâ€™,

FV = ($5)(30.6796)

**FV = $153.398**

**(2d)** Annual Cash Flow (f) = $5

No...

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