Question

Additional Problems: 1. An annuity immediate pays 500 every year for 10 years. Calculate the present value at the following rates of interest: a. Annual effective interest rate of 6% b. Nominal interest rate convertible monthly of 8% C. Nominal rate of discount convertible once every two years of 4%

Answer 1

DATE PAGE Annuity 500 Time period = 10 years 1 Annual effective interest rate = 6% 500 present vawe - 500 11+0.06) solving it - 500 L (170.0610 of annuity + SOO + SOO 11+0.06² 1140.06)3 (with Geometric progression) 10-1/11.06110 L 0.06 = 500 1 - 1/1.791 0.06 = Son 11-0.558) 0.06 - - 13683 (6) Nominal effective rate convertible monthly = 8y. Real interest rate Real interest rate = : 1it By jul 1lt - 1083 = 1.083 la So now present vawe of Annuity = = t t - - - 500 1.083 soo (1083)² 500 (1083/30 - = 500 T - //1.083)10 0.083 = 500 -o.us ) 0.083 13310

PAGE_ convertible once every 2 years discount W Nominal rate of of 41 le Xilih Effective ti rate = 1.0392 Present value of annuity + + o = 500 (1.0392) 500 11.0392)2 500 t 11:0392)3 500 (1+0.392) = 500 - 761.0392) 10 = 500 1-1/1.47 ) 0.0392 0.0 392 4078 - [4078 ]