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Mailings Review View Search . | ?.-11Nor mal ITNo Spac Heading 1 Heading 2 Title Paragraph Styles What's the future value of a 6%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent. An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 12% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent. You want to buy a car, and a local bank will lend you $40,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 10% with interest paid monthly, what will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.

Explanation / Answer

Answer(a) FV of annuity Due= (1+r)* P[((1+r)power n -1)/r] P= Periodic payment i.e 300 r= Rate per period i.e 6% n= Number Of period i.e 5 FV of annuity Due= 1792.596 Answer(b) Year return Pv @ 12% Pv of cash flow 1 50 0.892857 44.64286 2 50 0.797194 39.85969 3 50 0.71178 35.58901 4 250 0.635518 158.8795 5 350 0.567427 198.5994 6 550 0.506631 278.6471 756.2176 Present value= 756.2176 (approax 800) Future value Year return Fv at 12% FV of cash flow 1 50 1.762342 88.11708 2 50 1.573519 78.67597 3 50 1.404928 70.2464 4 250 1.2544 313.6 5 350 1.12 392 6 550 1 550 1492.639 Future value= 1492.639 (approax 1500) Answer( c) Amount lend= 40000 Amortise= 60Months Interest= 10% Monthly Instalment= 40000/Pvaf(10/12%, 60) = 849.7981729 = 849.8 EAR= (1+i/n)power n -1 i= Stated interest rate i.e 10% n= compounding period i.e 12 EAR= 10.47%

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