BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
5 views

Present 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. 1. January 1, 2019, if the first withdrawal is made on July 1, 2019
  2. 2. July 1, 2019, if the first withdrawal is made on July 1, 2019
  3. 3. January 1, 2019, if the first withdrawal is made on January 1, 2022

1.

To determine

Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on July 1, 2019.

Explanation

Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

Cash flow occurs during the first day of each time period is known as an annuity due, whereas cash flow occurs during the last day of each time period is known as an ordinary annuity.

Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on July 1, 2019.

Here, the cash flow (withdrawals) occurs during the last day of each time period, hence it is an ordinary annuity.

8 equal semiannual withdrawals of $8,000. Interest rate is 11% compounded semiannually and then the interest rate per one half-year is 5.5%(11%peryear12×6months in a semiannual)=5.5%

2.

To determine

Determine the amount required to be invested on July 1, 2019, if the first withdrawal is made on July 1, 2019.

3.

To determine

Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on January 1, 2022.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

PRESENT AND FUTURE VALUES FOR DIFFERENT PERIOOS Find the following values using the equations and then a financ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Why is productivity important?

Principles of Macroeconomics (MindTap Course List)