What is the future value of a 4%, 5-year ordinary annuity that pays $450 each ye
ID: 2729314 • Letter: W
Question
What is the future value of a 4%, 5-year ordinary annuity that pays $450 each year? Round your answer to the nearest cent.
If this were an annuity due, what would its future value be? Round your answer to the nearest cent.
Your parents will retire in 16 years. They currently have $220,000, and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.
If you deposit $18,000 in a bank account that pays 3% interest annually, how much would be in your account after 5 years? Round your answer to the nearest cent.
What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 9.7% annually? Round your answer to the nearest cent.
If you deposit money today in an account that pays 8.7% annual interest, how long will it take to double your money? Round your answer to the nearest whole number.
Explanation / Answer
Future value of annuity = P[ (1+r)n-1 / r ], where P = Periodic maymet, r = rate per period, n = number of periods
1. Future value of annuity = $450[ (1+0.04)5-1 / 0.04]
= $2,437.35
2.Let Interest rate required be 'r'
Futuer value, $100,000 = ($220,000 x r) [(1+r)16-1 / r]
by solving we get, r = 0.112299
= 11.30%p.a
3. Balance in your bank account after 5 years = 18000(1.03)5
= $20,867
4. PV of security = $5000(PVAF@9.7%,20years)
= $5000(8.69)
= $43,450
5. Let amount deposited be 'P'
=> P(1+i)n = 2P
=> (1+0.087)n = 2P/P
=> 1.087n = 2
On trail and error methot, n = 8.3 years (approx)
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