Question

Find the future values of the following ordinary annuities.

1. FV of $800 each 6 months for 6 years at a nominal rate of 16%, compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. FV of $400 each 3 months for 6 years at a nominal rate of 16%, compounded quarterly. Do not round intermediate calculations. 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 6-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 6 years. Why does this occur?

Answer 1

Solution to the FIRST QUESTION

Future Value of an Ordinary Annuity

Here, we’ve semi-annual payment (P) = $800

Semi-annual interest rate (r) = 8.00% [16.00% x ½]

Number of periods (n) = 12 Years [6 Years x 2]

Therefore, Future Value of an Ordinary Annuity = P x [{(1+ r)n - 1} / r ]

= $800 x [{(1 + 0.08)12 - 1} / 0.08]

= $800 x [(2.518170117 – 1) / 0.08]

= $800 x [1.518170117 / 0.08]

= $800 x 18.97712646

= $15,181.70

PLEASE BE NOTED (More than 1 Question)

Dear student, as per the CHEGG guidelines, the experts are advised to answer the first question only when multiple questions were asked. Here, the multiple questions have asked in the single post and therefore, only the first question have been answered as per the CHEGG guidelines. Can you please ask the remaining questions separately. THANK YOU..!!!