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Calculating future and present values of ordinary annuities

Problem 1
If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.
- Recalculate the future value at 6 percent interest and 9 percent interest.

Problem 2
If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.
- Recalculate the present value at 10 percent interest and 13 percent interest.

Problem 3
What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?
- Recalculate the present value using discount rate of 11 percent and 12 percent.

Solution Preview

Problem 1
If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.
Periodic Deposit=R=$400
Number of periods=n=6
Rate of interest=i=8%

Future Value of ordinary annuity=FV=R/i*((1+i)^n-1)=400/8%*((1+8%)^6-1)=$ 2934.37

-Recalculate the future value at 6 percent interest and 9 percent interest.
If Rate of interest=i=6%
Future Value of ...

Solution Summary

The solution depicts the methodology to calculate the present and future values of ordinary annuities. Calculations are carried out with the help of suitable formulas.

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