Question

Find the future values of the following ordinary annuities.

a. FV of $800 each 6 months for 5 years at a nominal rate of 8%, compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent. $

b. FV of $400 each 3 months for 5 years at a nominal rate of 8%, compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent. $

Answer 1

a.Information provided:

Semi-annual annuity= $800

Time= 5 years*2= 10 semi-annual periods

Yield to maturity= 8%/2= 4% per semi-annual period

Enter the below in a financial calculator to compute the future value:

PMT= -800

I/Y= 4

N= 10

Press the CPT key and FV to compute the future value.

The value obtained is 9,604.89.

Therefore, the future value of the ordinary annuity is $9,604.89.

b.Information provided:

Semi-annual annuity= $400

Time= 5 years*4= 12 quarters

Yield to maturity= 8%/4= 2% per quarter

Enter the below in a financial calculator to compute the future value:

PMT= -400

I/Y= 2

N= 12

Press the CPT key and FV to compute the future value.

The value obtained is 5,364.84.

Therefore, the future value of the ordinary annuity is $5,364.84.