File Name: ordinary annuity problems and solutions .zip
Solve by Factor Formula? Use a discount rate of eight percent.
Solve by Factor Formula? Use a discount rate of eight percent. Mohammad Ali has received a job offer from a large investment bank as an accountant. He will receive his first annual salary payment one year from the day he begins to work. Ali is expected to work for 25 years. What is the present value of the offer if the discount rate is 12 percent? Option A. If a 7 percent interest rate is applied, what is the current value of the future payments if first receipt occurs today?
If the stated interest rate is eight percent, discounted quarterly, what is the present value of this annuity? You have won the lottery! The lottery officials offer you two choices for collecting your winnings. Which would you take? Future Value and Present Value Tables.
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An ordinary annuity is a series of equal payments, with all payments being made at the end of each successive period. An example of an ordinary annuity is a series of rent or lease payments. The present value calculation for an ordinary annuity is used to determine the total cost of an annuity if it were to be paid right now. The formula for calculating the present value of an ordinary annuity is:. The calculation is:. As another example, ABC International is contemplating the acquisition of a machinery asset.
If money earns an annual rate of 6. How much is the interest earned? The family agrees to pay the loan off by making monthly payments over a 15 year period.
Quantitative Methods 1 Reading 6. The Time Value of Money Subject 4. Why should I choose AnalystNotes? AnalystNotes specializes in helping candidates pass. Find out more.
At the beginning of the section, we looked at a problem in which a couple invested a set amount of money each month into a college fund for six years. An annuity is an investment in which the purchaser makes a sequence of periodic, equal payments. To find the amount of an annuity, we need to find the sum of all the payments and the interest earned.
In other words, the deferred annuity formula helps in determining the present value of the future annuity payments on the basis of the applicable rate of interest and period of delay. If the annuity payment is to be made at the end of each period, then it is known as ordinary annuity and its formula is expressed using annuity payment, rate of interest, number of periodic payments and period of delay. Mathematically, it is represented as,. If the annuity payment is to be made at the beginning of each period, then it is known as an annuity due and its formula is also expressed using annuity payment, rate of interest, number of periodic payments and period of delay. Calculate the amount of money deposited if the annuity payment is supposed to be made at the end of each year. Let us now assume that all the conditions remain the same as in Example 1 except that in this case the annuity payment is supposed to be made at the beginning of each year. Calculate the amount of money deposited today by David.
The power of compound interest, as you have already seen, is amazing. Your investment realizes exponential growth, and over long periods of time the results are spectacular. Taking advantage of this principle, many parents and grandparents too invest large amounts of money when their children are young to have enough money to pay for their college or university education. Many students now stay at home longer with their parents while they pursue postsecondary education. Some accumulate sums of wealth at an early age through part-time earnings when they have little or no expenditure. See the difference? The financial freedom you will experience for the rest of your life would be enviable.
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