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An enterprise needs to make the following annuity payments into a private pension fund: £1100 paid at the beginning of each year for the first 6 years and then £1199 paid at the beginning of each year for the next 9 years and then £720 paid at the beginning of each year for the following 7 years. Calculate the amount of capital accumulated in the fund by the end of the last year, given that the rate of interest during this period is: 6.6% pa effective for the first 10 years and then, 6.4% pa effective thereafter.

An enterprise needs to make the following annuity payments into a private pension fund: £1100 paid at the beginning of each year for the first 6 years and then £1199 paid at the beginning of each year for the next 9 years and then £720 paid at the beginning of each year for the following 7 years. Calculate the amount of capital accumulated in the fund by the end of the last year, given that the rate of interest during this period is: 6.6% pa effective for the first 10 years and then, 6.4% pa effective thereafter.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An enterprise needs to make the following annuity payments into a private pension fund: £1100 paid at the beginning of each year for the first 6 years and then £1199 paid at the beginning of each year for the next 9 years and then £720 paid at the beginning of each year for the following 7 years.

Calculate the amount of capital accumulated in the fund by the end of the last year, given that the rate of interest during this period is: 6.6% pa effective for the first 10 years and then, 6.4% pa effective thereafter. no tables, only formulas, please

Expert Solution
Step 1: Explain future value of annuity due

The payment are made at the beginning of the each year. Therefore, there is an annuity due. The formula for calculating the future value of annuity due is 

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