Question

Question 1 a

Addis company limited recorded GH¢1,000,000 this year. How much sales will the company record in 11 years if sales is expected to grow at 3% quarterly. *

Question 1 b

You have the option to buy an annuity that pays GH¢7,500 at the end of each year for 8 years. You are optimistic that you can earn 9% on your invstment. What is the most you should pay for this investment? *

Answer 1

The amount is computed as shown below:

Future value = Present value (1 + r)ⁿ

So, the amount will be computed as follows:

= GH¢1,000,000 (1 + 0.03) ^{11 x 4}

= GH¢1,000,000 x 1.03⁴⁴

= GH¢ 3,671,452.27 Approximately

The amount is computed as shown below:

Present value = Annual payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

= GH¢7,500 x [ (1 - 1 / (1 + 0.09)⁸ ) / 0.09 ]

= GH¢7,500 x 5.534819115

= GH ¢ 41,511.14 Approximately

Feel free to ask in case of any query relating to this question