Question 3: You place equal periodic investment payments in to bothan ordinary simple annuityaccount and an...

Question 3: You place equal periodic investment payments in to bothan ordinary simple annuityaccount and an annuity dueaccount for the same period of time and at the same interest rate.

Briefly describe how the accumulated value (future value) would differ between the two accounts at the end of the investment period. (5 points)

In future value the person will know how much the person will have every year

Expert Solution

Ordinary annuity is when you make the payment at the end of period and annuity due is when you make the deposit at the beginning of the period. Let’s take an example to understand this,

A 5-year ordinary annuity in which you have to deposit every year 5000 at 7% interest rate. Here the first deposit you will make is at year 1, at the end of period.

A 5-year annuity due in which you have to deposit every year 5000 at 7% interest rate. Here the first deposit you will have to make today, at time zero.

The difference in terms of future value is, the future value would be higher for the annuity due because the first deposit would remain invested for 5 years and so on but in the case of ordinary annuity the first payment would remain invested for 4 years so the future value of annuity due would be higher.

If we use the financial calculator to calculate the Future value of these annuities then the future value of ordinary annuity would be $28,753.70 and the future value of annuity due would be $30,766.45.

jeff jeffy answered 1 year ago

Recall that an annuity is any sequence of equal periodic payments. If payments are made at...

Recall that an annuity is any sequence of equal periodic payments. If payments are made at the end of each time interval, then the annuity is called an ordinary annuity. We consider only ordinary annuities in this summer. The amount, or future value, of an annuity is the sum of all payments plus all interest earned. Suppose you decide to deposit $600 every 6 months into an account that pays 18% compounded semiannually. If you make eight deposits, one at...

An ordinary annuity selling at $14,755.18 today promises to make equal payments at the end of...

An ordinary annuity selling at $14,755.18 today promises to make equal payments at the end of each year for the next ten years (N). If the annuity’s appropriate interest rate (I) remains at 9.50% during this time, the annual annuity payment (PMT) will be $_____. You just won the lottery. Congratulations! The jackpot is $10,000,000, paid in ten equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won $...

Consider annuities which have equal payments spread over equal intervals of time. A simple or regular...

Consider annuities which have equal payments spread over equal intervals of time. A simple or regular ordinary annuity possesses two important properties. State these two important properties.

Question 1: You invest in a portfolio of 5 stocks with an equal investment in each...

Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. A. Compute the beta of the portfolio. B. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18%

7. You borrow $35,000 today and will make equal annual payments for the next 3 years,...

7. You borrow $35,000 today and will make equal annual payments for the next 3 years, starting in 1 year. a. What is the value of the annual payment if the nominal interest on the loan is: 9.50% Payment b. Show the amortization of the loan in the table set up below: Year Beg. Balance Payment Interest Principal Ending Balance 1 2 3 TOTAL Excel function or formula answer please

What equal payments in 3 years and 5 years would replace payments of $40,000 and $97,500...

What equal payments in 3 years and 5 years would replace payments of $40,000 and $97,500 in 6 years and 9 years, respectively? Assume money can earn 3.66% compounded monthly. Use 9 years as the focal date.

9.1. Obtain the total periodic payments of a loan of 16,000€ and 3 years term, with...

9.1. Obtain the total periodic payments of a loan of 16,000€ and 3 years term, with the following conditions: a. Adjustable interest rate. Annual adjustment period: 1 year. Type of loan: Semi-annually constant principal repayments over 3 years. Nominal interest rate for the 1st period: 3% Interest rates for the remaining periods: the index rate plus 0.5 percentage points. The index rate take the following values for the other periods: ir = 0.05 ; ir = 0.045 Find the periodic...

A loan of $9,000 is to be repaid in 3 equal payments 60, 180, and 300...

A loan of $9,000 is to be repaid in 3 equal payments 60, 180, and 300 days respectively after the date of the loan. If the interest rate charged on the loan is 7¼%, what will be the size of each equal payment? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

s QUESTION 10 Car payments are determined using simple interest. If you don’t remember this formula,...

s QUESTION 10 Car payments are determined using simple interest. If you don’t remember this formula, go back and look it up! To finance your vehicle purchase you have two choices. Write two equations, one for each bank, that models the banks' loan options using x for the price of the vehicle and y to represent the total cost (price, interest and origination fees) paid on each loan. Be sure to label which equation goes with which bank. Bank A:...

What is the present value of a perpetuity consisting of equal payments of $66 every 3...

What is the present value of a perpetuity consisting of equal payments of $66 every 3 months, where the first payment occurs 3 months from now, and the interest rate is 12% p.a.? Select one: a. $59 b. $2200 c. $550 d. $64

Question