Question

1. Write the symbol for the present value of an annuity immediate that pays $2 monthly at an annual effective rate of 8% for 10 years then calculate its value.

Answer 1

Present Value of Annuity =

r is the Rate of interest. i.e.

Effective Rate = (1+Nominal Rate/12)^12 - 1

0.08 + 1   = (1+Nominal Rate/12)^12

= 1+Nominal Rate/12

1.00643403011 * 12 = 12+Nominal Rate

12.0772083613 - 12 = Nominal Rate

0.0772 OR 7.72% = Nominal Rate  

r = 0.0772 / 12 = 0.00643333333

n is the compounding periods 10 years * 12 = 120 months

=

= $ 166.87