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Exam 12: Annuities

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Question 1

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Use the appropriate formula to find how much you should deposit now at 9% interest, compounded annually, to yield an annuity payment of $1,200 at the BEGINNING of each year, for 18 years.

A) $10,252.36
B) $7,870.92
C) $7,486.12
D) $11,452.36

E) B) and D)
F) All of the above

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Question 2

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Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Andy needs to pay off a loan of $8,000 in 5 years. Find the amortization payment he would need to make each year, at 7% interest compounded annually, in order to pay off her loan

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Question 3

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Use Table 12-1 from your text to calculate the future value of the ordinary annuity, rounding to the nearest cent: $\begin{array} { l l l l l l } \text { Annuity } & \text { Payment } & \text { Time } & \text { Nominal } & \text { Interest } & \text { Future Value of } \\\text { Payments } & \text { Frequency } & \text { Period } & \underline { \text { Rate } } & \underline { \text { Compounded } } & \text { the Annuity }\\\$10,000&\text { every } 6 \text { months } &10 \text { years }&\text { semiannually } \end{array}$

The total amount of the annuity payments and the accumulated interest on those payments is known as the future value of the annuity.

Lidia deposits $900 at the END of each year for 9 years in a savings account. The account pays 8% interest, compounded annually. Lidia calculates that the future value of the ordinary annuity is $11,238.80. What would be the future value if deposits are made at the BEGINNING of each period rather than the END?

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Craig Consulting needs to accumulate $38,000 in 4 years to meet future needs. What sinking fund payment would they need to make at the END of each three months, at 6% interest compounded quarterly? (Use the appropriate formula)

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Find the interest earned on an account if a deposit of $1,000 is made at the BEGINNING of every year, for 3 years if the bank pays 4% interest, compounded annually.

Use Table 12-2 from your text to calculate the amount of the periodic payment required to amortize (pay off) the loans, rounding to the nearest cent: $\begin{array}{llllll}\text { Loan } & \text { Payment } & \text { Term of } & \text { Nominal } & \text { Interest } & \text { Present Value } \\\underline{\text { Payment }}& \underline{\text { Period }} & \underline{\text { Loan }} & \underline{\text { Rate }} & \underline{\text { Compounded }} & \underline{\text { (Amount of Loan) } }\\& \text { every month } & 8 \text { years } &15 \% & \text { annually }&\$20,000\end{array}$

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Lisa Daniels wants to receive $2,000 per year for the next 8 years. She can receive $1,000 at the END of every 6 months or $500 at the end of every 3 months. She can invest at 6% interest annually. How much less will she have to deposit today if she elects to receive $1,000 at the END of every 6 months?

Use Table 12-1 from your text to calculate the future value of the annuity due, rounding to the nearest cent: $\begin{array} { l l l l l l } \text { Annuity } & \text { Payment } & \text { Time } & \text { Nominal } & \text { Interest } & \text { Future Value } \\\text { Payments } & \text { Frequency } & \text { Period } & \underline { \text { Rate } } & \text { Compounded } & \text { of the Annuity } \\\hline \$ 2,000 & \text { every } 6 \text { months } & 10 \text { years } & 18 \% & \text { semiannually } &\end{array}$

A(n) ____________________ is the payment or receipt of equal cash amounts per period for a specified amount of time.

____________________ annuities are those in which the annuity payments and compounding periods do not coincide.

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Juno needs to pay off a loan of $9,500 in 4 years. Find the amortization payment she would need to make each year, at 8% interest compounded annually, in order to pay off her loan.

Leon's Plumbing wishes to pay off a debt of $21,000 in 6 years. What amortization payment would they need to make every three months, at 6% interest compounded quarterly? (Use Table 12-2 from your text)

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Find the interest earned on an account if a deposit of $800 is made at the BEGINNING of every quarter, for 4 years if the bank pays 8% interest, compounded quarterly.

For the sinking funds, use Table 12-1 from your text to calculate the amount of the periodic payments needed to amount to the financial objective (future value of the annuity), rounding to the nearest cent: $\begin{array} { l l l l l l } \text { Sinking Fund } & \text { Payment } & \text { Time } & \text { Nominal } & \text { Interest } & \text { Future Value } \\\text { Payment } & \text { Frequency } & \text { Period } & \text { Rate } & \text { Compounded } & \text { (Objective) } \\&\text { every } 3 \text { months } & 1 \frac{1}{2} & 16 \%& \text { quarterly } &\$ 2,500 \end{array}$

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Anita Jacobs could deposit $600 every 3 months in her credit union which pays 12% interest compounded quarterly. How much more would she have in her account at the END of 4 years if she deposited the $600 at the BEGINNING of each quarter rather than at the END of each quarter?

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Find the interest earned on an account if a deposit of $500 is made at the END of every quarter, for 5 years if the bank pays 12% interest, compounded quarterly.

Use Tables 12-1 and 12-2 from your text to answer the following problems. (Round dollars to the nearest cent) -Refer to Narrative in your text 12-1. Johnny Ayvas has been awarded an insurance settlement of $10,000 at the BEGINNING of each 6-month period for the next 15 years. How much must the insurance company set aside now, at 10% interest compounded semiannually, in order to pay this obligation to Ayvas?

Mechanic's Hardware needs to accumulate $41,000 in 3 years to purchase new equipment. What sinking fund payment would they need to make at the END of each month, at 6% interest compounded monthly? (Use Table 12-1 from your text)