Find the future values of the following ordinary annuities: 1. FV of $400 paid e
ID: 2621561 • Letter: F
Question
Find the future values of the following ordinary annuities:
1. FV of $400 paid each 6 months for 5 years at a nominal rate of 8%, compounded semiannually. Round your answer to the nearest cent.
2. FV of $200 paid each 3 months for 5 years at a nominal rate of 8%, compounded quarterly. Round your answer to the nearest cent.
3. The annuities described in parts a and b have the same amount of money paid into them during the 5-year period and both earn interest at the same nominal rate, yet the annuity in part b earns more than the one in part a over the 5 years. Why does this occur?
Explanation / Answer
1. FV of $400 paid each 6 months for 5 years at a nominal rate of 8%, compounded semiannually. Round your answer to the nearest cent.
ANS:- 6 MONTH INTEREST RATE = 8/2 = 4% FOR 6 MONTHS
NO OF PERIODS = 5*2 = 10
FUTURE VALUE = 400*FVIFA(4%,10)
= 400*12.0061
= $4802.44 [ANSWER]
2. FV of $200 paid each 3 months for 5 years at a nominal rate of 8%, compounded quarterly. Round your answer to the nearest cent.
ANS:- 3 MONTH INTEREST RATE = 8/4 = 2% FOR 3 MONTHS
NO OF PERIODS = 5*4 = 20
FUTURE VALUE = 200*FVIFA(2%,20)
= 200*24.2974
= $4859.48 [ANSWER]
3. The annuities described in parts a and b have the same amount of money paid into them during the 5-year period and both earn interest at the same nominal rate, yet the annuity in part b earns more than the one in part a over the 5 years. Why does this occur?
ANS:- The annuities described in parts a and b have the same amount of money paid into them during the 5-year period and both earn interest at the same nominal rate, yet the annuity in part b earns more than the one in part a over the 5 years BECAUSE OF THE COMPOUNDING EFFECT . IN PART
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