Question

1. Find the accumulated value of a 12-year annuity-immediate of $500 per year, if the effective rate of interest (for all money) is 8% for the first 3 years, 6% for the following 5 years, and 4% for the last 4 years.

The answer is $7,961.71.

Excel solution is preferred.

Answer 1

Ans:- we will use the FV function of excel to find the answer.

For first the first 3 years Rate = 8%, Nper = 3, Pmt = -$500, PV = 0.

For next 5 years Rate = 6%, Nper = 5, Pmt = -$500, PV = -$1623.20 ( Since at the end of 3rd year $1623.20 has been accumulated in the account)

For last 4 years Rate = 4%, Nper = 4, Pmt = -$500. PV = -$4990.75. ( Since at the end of 8th year $4990.75 has been accumulated in the account)

Therefore, the accumulated value of 12 years annuity is $7961.71.

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