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OrdinaryAnnuity Ordinary Annuity 7periods 5.2064 8.92280 8periods 5.7466 10.6366

ID: 2433518 • Letter: O

Question

                    OrdinaryAnnuity                       Ordinary Annuity

7periods           5.2064                                        8.92280

  8periods            5.7466                                      10.63663

  9periods            6.2469                                      12.48756

1.     What will be the balance on September 1, 2010 in a fund whichis accumulated by making $24,000 annual deposits each September 1beginning in 2003, with the last deposit being made on September 1,2010? The fund pays interest at 8% compoundedannually.

           a.   $255,279

           b.   $214,148

           c.   $181,440

2.     What amount should be recorded as the cost of a machinepurchased December 31, 2006, which is to be financed by making 8annual payments of $8,000 each beginning December 31,2007? The applicable interest rate is 8%.

           a.   $56,000

           b.   $49,975

           c.   $85,093

           d.   $45,973

Explanation / Answer

[OR]

[OR]

FVt = C *[(1+r)t -1] / r Future Value = $24,000 * Future Value ofOrdinary Annuity Factor at 7 periods Future Value= $24,000 * 8.92280 Future Value =$214,147.2

[OR]

Calculating Future Value of Ordianary Annuity(FV): (UsingMs-Excel "FV" Function): InterestRate (Rate) 8% Number ofPeriods (Nper) 7 AnnualDeposit Amount (PMT) -24,000 Future Value of Deposit Amount(FV) $214,147.28 PV = C * {1 - [1/(1+r)t]} /r Present Value of Machine Cost = AnnualPayments * Present Value of Ordinary Annuity Factor at 8periods Present Value of Machine Cost = AnnualPayments * Present Value of Ordinary Annuity Factor at 8periods PresentValue of Machine Cost = $8,000 * 5.7466 Present Value of Machine Cost =$45,973

[OR]

Calculating Present Value of Machine Cost(PV): (UsingMs-Excel "PV" Function): InterestRate (Rate) 8% Number ofPeriods (Nper) 8 AnnualPayments Amount (PMT) -8,000 Present Value of Machine cost(PV) $45,973.11
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