Find the future values of the following ordinary annuities a. FV of $200 paid ea

Question

Find the future values of the following ordinary annuities a. FV of $200 paid each 6 months for 5 years at a nominal rate of 15% compounded semiannually. Round your answer to the nearest cent. b, FV of $100 paid each 3 months for 5 years at a nominal rate of 15% compounded quarterly. Round your answer to the nearest cent. c. These annuities receive the same amount of cash during the 5-year period and earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part a. Why does this occur? -Select- The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a). The annuity in part (a) is compounded less frequently: therefore, more interest is earned on previously-earned interest. The annuity in part (a) is compounded more frequently; therefore, more interest is earned on previously-earned interest. The annuity in part (b) is compounded less frequently; therefore, more interest is earned on previously-earned interest The annuity in part (b) is compounded more frequently; therefore, more interest is earned on previously-earned interest.

Explanation / Answer

a. N = 10, PV = 0, PMT = 200, rate = 15%/2

use FV function in Excel

future value = 2,829.42

b. N = 20, PV = 0, rate = 15%/4, PMT = 100

future value = 2,901.74

option D

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