The Spenz Corporation has just made a big sale and wants to pay its insurance fo

Question

The Spenz Corporation has just made a big sale and wants to pay its insurance for two years in advance while it has the money to do so. Previously, Spenz has paid $200 in premiums quarterly. Assuming a compound interest rate of 12%, what single sum of money should Spenz pay? (Note: Since the insurance payments are due at the beginning of the period of coverage, the assumption of payments at the end of each period calls for an adjustment to be made in the present value calculation.) How can this be answered in a simpler manner with a financial calculator?

Explanation / Answer

1446.057

Quarters Premium PV of 12%
(Quarterly Compounding) Amount 1 200 1 200 2 200 0.970873786 194.1748 3 200 0.942595909 188.5192 4 200 0.915141659 183.0283 5 200 0.888487048 177.6974 6 200 0.862608784 172.5218 7 200 0.837484257 167.4969 8 200 0.813091511 162.6183

1446.057

PVA due =c*[(1-(1+i)^-n)/i]*(1+i) =200*[(1-(1+.03)^-7)/.03]*(1+.03) 1446.057

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