Question

8. What is the future value of semi-annual payments of $6,500 for eight years at 12 percent?

9. You are considering an investment which would entail $5,000 payments each year for 20 years. The investment will pay 7 percent interest. How much will this investment be worth at the end of the 20 years?

Answer 1

Solution

8. Future value of annuity=Annuity payment*(((1+r)^n)-1)/r

Here

r-intrest rate per period=12/2=6% semi annual

n-number of periods=8*2=16

Annuity payment=6500

Putting values

Future value of annuity=6500*(((1+.06)^16)-1)/.06

Future value of annuity=$166871.43

9.

Future value of annuity=Annuity payment*(((1+r)^n)-1)/r

Here

r-intrest rate per period=7%

n-number of periods=20

Annuity payment=5000

Putting values

Future value of annuity=5000*(((1+.07)^20)-1)/.07

Solving we get

Future value of annuity=$204977.46 (Future value of investment at end of 20 years)

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