1.Find the amount of the annuity.Amount of Each Deposit: $6,200Deposited: SemiannuallyRate per Year: 6%Number of Years: 5Type of Annuity: Ordinary$79,408.36$81,720.90$71,076.06$73,208.36
Accepted Solution
A:
To solve this we are going to use the future value of annuity ordinary formula: [tex]FV=P[ \frac{(1+ \frac{r}{n} )^{kt} -1}{ \frac{r}{n} } ][/tex] where [tex]FV[/tex] is the future value [tex]P[/tex] is the periodic payment [tex]r[/tex] is the interest rate in decimal form [tex]n[/tex] is the number of times the interest is compounded per year [tex]k[/tex] is the number of payments per year [tex]t[/tex] is the number of years
We know for our problem that [tex]P=6200[/tex] and [tex]t=5[/tex]. To convert the interest rate to decimal form, we are going to divide the rate by 100%: [tex]r= \frac{6}{100} =0.06[/tex] Since the deposit is made semiannually, it is made 2 times per year, so [tex]k=2[/tex]. Since the type of the annuity is ordinary, payments are made at the end of each period, and we know that we have 2 periods, so [tex]n=2[/tex]. Lets replace the values in our formula: