Question

Problem 10-11 Calculating Future Value of Insurance Savings [LO10-6] Beverly and Kyle Nelson currently insure their cars with separate companies, paying 5500 and $510 a year. If they insured both cars with the same company, they would save 15 percent on the annual remium What would be the future value of the annual savings Ove 10 years based on an annual Interest rate of 5 percent Use Do not found Intermediate calculations Round time value factor to 3 decimal places and final answer to 2 decimal places.) 2 decimal places required.

I'm confused on the rounding part. I keep getting it wrong

Answer 1

P = PMT x ((((1 + r) ^ n )- 1) / r)

Where:

P = the future value of an annuity stream

PMT = the dollar amount of each annuity payment

r = the interest rate (also known as the discount rate)

n = the number of periods in which payments will be made

15 % savings on premium = 500 + 510 = 1010 x 0.15 = 151.5

P = 151.5 x ((((1.06)^10 ) - 1 )/0.06)

= 151.5 x 13.18079

= 1996.8904

round up to 2 decimal points(to nearest hundredths)  = 1996.89 (after 9 we can place two zeros to reach to nearest 100th place but two zeros are not worth mentioning here , naturally understanable )