Question

9. Choose the best answer

Calculate the future value “due” of 8 payments of $ 8000 if the interest rate is 8%

Due 1-8th year 8000

Possible answers:

$ 87,093.02

$ 85,093.02

$ 82,093.02

$ 88,093.02

Answer 1

FV of annuity due	=	(1+r) * P * [ (1+r)^n -1 ]/r
Periodic payment	P=	$              8,000.00
Rate of interest per period	r=
Rate of interest per year		8.0000%
Payment frequency		Once in 12 months
Number of payments in a year		1.00
rate of interest per period		0.08*12/12	8.0000%
Number of periods	n=
Number of years		8.00
Number of payments in a year		1
Total number of payments	n=	8
FV of annuity due	=	(1+0.08) * 8000 [ (1+0.08)^ 8 -1] /0.08
	=	91,900.46

Future value of annuity due is 91,900.46

Regular annuity:

FV of annuity	=	P * [ (1+r)^n -1 ]/ r
Periodic payment	P=	$                8,000.00
rate of interest per period	r=
Rate of interest per year		8.0000%
Payment frequency		Once in 12 months
Number of payments in a year		1.00
rate of interest per period		0.08*12/12	8.0000%
Number of periods
Number of years		8
Number of payments in a year		1
Total number of periods	n=	8
FV of annuity	=	8000* [ (1+0.08)^8 -1]/0.08
FV of annuity	=	85,093.02