a.
To calculate:
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
a.
Explanation of Solution
Given,
The
The interest rate is 14% or 0.14.
The numbers of years are 8 years.
The formula to calculate value of annuity is equation (I).
Here,
- FV stands for future value.
- C is for monthly payment.
- I is interest rate.
- n stands for no of payments.
Substitute $500 for C, 0.14 , n for 8 years in equation (I)
The annuity is $6,605.
Hence, the future value of
(b)
To calculate: Future value of
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
(b)
Explanation of Solution
Given,
The
The interest rate is 7%.
The numbers of years are 4 years.
Substitute $250 for C, 0.07 , n for 4 years in equation (I)
The future value of
(c)
To calculate: Future value of
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
(c)
Explanation of Solution
Given,
The
The interest rate is 0%.
The numbers of years are 4 years.
The formula to calculate the future value of an annuity when interest rate is 0,
Substitute $700 for C, 0.00 for r, n for 4 years.
The future value of
(d)
To rework: Part a, b and c as they are due.
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
(d)
Explanation of Solution
The formula to calculate future value of
Were,
- FV stands for future value of annuity.
- C symbolizes the monthly payment.
- I is for interest rate.
- N is for number of payments.
d.a.
To calculate: Future value of
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
d.a.
Explanation of Solution
Given,
The
The interest rate is 14% or 0.14.
The numbers of years are 8 years.
Substitute C for $500, i for 14%, n for 8 years in equation {(d) I}
The future value of
d.b
To calculate: Future value of
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
d.b
Explanation of Solution
Given,
The
The interest rate is 7%.
The numbers of years are 4 years.
Substitute C for $250, I for 7%, n for 4 years.
The future value of
d.c
To calculate: Future value of
Annuity:
It is an agreement under which person pays the lump sum payment or number of small payments and in return gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.
d.c
Explanation of Solution
Given,
The
The interest rate is 0%.
The numbers of years are 4 years.
The following formula will be used to solve.
Substitute C for $700, i for 0%, n for 4 years in equation.
The future value of
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Chapter 5 Solutions
Fundamentals of Financial Management (MindTap Course List)
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