Sunday, January 17, 2010

Annuity Questions Math Ordinary Annuity Question: How Do I Do This?

Math Ordinary Annuity Question: How do I do this? - annuity questions

Determine the amount of the normal pension:
A payment of $ 1,500 by the end of every 3 months to 8% per annum, compounded quarterly.

That's not my job. I take a test on Tuesday and I was sick when the teacher teaches. The response I received was $ 6, 182.41, but it is wrong. The real answer is $ 12,874.45

How do I find the answer?
Any help is welcome.
Thanks in advance!

1 comments:

Didn't hire me Your mistake said...

You have some information on the left:

1. Does the future value or cash value?
2. How many payments are made?

After trial and error, I realized that I needed in the future value of 8 quarterly installments.

FV = x * [(1 + i) ^ n - 1] / i, where

FV = Future Value
x = amount of periodic payment
i = effective interest rate per pay period (decimal)
n = number of payments

While the payments are made quarterly, we have to convert the interest rate paid in cash at a quarterly rate of interest. But since the default rate is hampered quarterly, is simple: i = .08 / 4 = .02

Since there are 8 quarterly installments, n = 8

Therefore,

FV = 1500 * (1.02 ^ 8-1) /, 02
FV = 12,874.45

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