Question
-1- Future value of an annuity Using the values below, answer the questions that follow.(Click on the icon located on the top-right corner of the
-1- Future value of an annuityUsing the values below, answer the questions that follow.(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Amount of annuity | Interest rate | Deposit period (years) |
|
$500 | 5% | 11 |
a.Calculate the future value of the annuity, assuming that it is
(1) An ordinary annuity.
(2) An annuity due.
b.Compare your findings in parts a(1) and a(2).
All else being identical, which type of annuityordinary or annuitydueis preferable as an investment? Explain why.
a. (1) The future value of the ordinary annuity is $__________________ ROUND TO THE NEAREST HUNDRETH ON ALL ANSWERS.
-2-PerpetuitiesConsider the data in the following table.(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Annual amount | Discount rate |
|
$29,000 | 24% |
Determine the present value of the perpetuity.
The present value of the perpetuity is $________________ ROUND TO THE NEARST HUNDRETH.
-3- Changing compounding frequencyUsing annual, semiannual, and quarterly compounding periods, (1) calculate the future value if$9,000 is deposited initially at 9% annual interest for 8 years, and (2) determine the effective annual rate(EAR).
Annual Compounding
(1) The future value, FVn, is $17,933.06. (Round to the nearest cent.)(2) If the 9% annual nominal rate is compounded annually, the EAR is ______________
ROUND ALL ANSWERS TO THE NEARST HUNDRETH.
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