An annuity-certain is to be purchased on 1 November 1984 to provide 15instalments, payable 1 September 1985 and thereafter on the first day of eachJanuary, May and September until 1 May 1990 inclusive. The amount of the firstinstalment is to be R1 000 and each subsequent instalment is to be 5% greater thanits predecessor.(i)Calculate the purchase price of the annuity-certain on the basis of aneffective interest rate of 6% per annum.(ii)the annuity.Calculate the interest content of each of the 7th and the 15th instalments of

Annuity Certain- It is an installment that provides the payout in periodic intervals according to…

Answered: (i) Calculate the purchase price of the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following table is for the present value of $1 at compound interest. Year 1 2 3 4 5 6% Year 1 2 3 4 5 0.943 0.890 0.840 0.792 0.747 The following table is for the present value of an annuity of $1 at compound interest. 6% 0.943 1.833 2.673 10% 0.909 0.826 0.751 0.683 0.621 3.465 4.212 12% 0.893 0.797 0.712 0.636 0.567 10% 0.909 1.736 2.487 3.170 3.791 12% 0.893 1.690 2.402 3.037 3.605 Using these tables, what would be the present value of $15,000 (rounded to the nearest dollar) to be received 3 years from today, assuming an earnings rate of 6%?
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(i) Calculate the purchase price of the annuity-certain on the basis of an effective interest rate of 6% per annum. (ii) Calculate the interest content of each of the 7th and the 15th instalments of the annuity.