Question

Karen and Mike currently insure their cars with separate companies, paying $800 and $1,000 a year. If they insured both cars with the same company, they would save 12 percent on the annual premiums. What would be the future value of the annual savings over 10 years based on an annual interest rate of 5 percent? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value

Answer 1

Annual Savings = (800+1000)*12% = $216

Future value of annuity = Annual Amount*Future value annuity factor

= 216*FVAF(5%, 10 years)

= 216*12.578

= $2716.848