Chapter 12.I, Problem 9RE

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Use Table 12-1 to calculate the future value of the following annuities due. Annuity Payment Time Nominal Interest Future Value Payment Frequency Period (years) Rate (%) Compounded of the Annuity 9. $2,000 every year 25 5 Annually_____________ To determine To calculate: The future value of annuity due where annuity payment is$2,000, frequency of payment is 1 Year, time duration is 25 years, nominal rate of return is 5% and interest is compounded annually.

Explanation

Given Information:

Annuity payment is $2,000, frequency of payment is 1 Year, time duration is 25 years, nominal rate of return is 5% and interest is compounded annually. Formula used: Steps for calculating the future value of an annuity due are: Step 1: Calculate the number of periods of the annuity and add one period to total. Step 2: The interest rate per period must be calculated. Step 3: Use table 12-1 to locate the ordinary annuity table factor that lies on the intersection of the rate-per period column and number-of-periods row. Step 4: The number 1.00000 must be subtracted from the ordinary annuity table in order to get the annuity due factor. Step 5: Finally calculate the future value of the annuity due. The formula to compute the future value of ordinary annuity is, Future Value=Annuity due table factor×Annuity payment Annuity due table factor=Ordinary annuity table factor1.00000 Calculation: Consider that Annuity payment is$2,000, frequency of payment is 1 Year, time duration is 25 years, nominal rate of return is 5% and interest is compounded annually.

As the interest is compounded annually. So, the interest rate period is;

5%1=5%

The rate period is 5%

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