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10 February, 12:30

Find the present values of these ordinary annuities. discounting occurs once a year.

a. $600 per year for 12 years at 8%

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Answers (1)
  1. 10 February, 15:41
    0
    The formula for future annuity is given by:

    FV=P[ (1+r) ^n-1]/r

    where:

    FV-future value

    P=principle

    r=rate

    n=time

    thus given that:

    p=$600, n=12 years, r=8%

    The future value annuity of this amount will be:

    FV=600[ (1+0.08) ^12-1]/0.08

    simplifying the above we get:

    FV=$11,386.28

    Thus the present value of this amount will be calculated using compounding formula:

    A=P (1+r) ^n

    the terms are defined as above

    thus plugging our values and solving for P we get

    11386.28=P (1+0.08) ^12

    simplifying this we get:

    P=$4521.65

    Hence the present value of this annuity is $4521.65
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