An annuity-due has 26 payments of $300 per period. The effective rate of interest per period...

An annuity-due has 26 payments of $300 per period. The effective rate of interest per period is 8% for the first 12 periods and 5% for the following 14 periods.

(A) Find the accumulated value of the annuity using the portfolio method. Round your answer to 2 decimal places.

(B) Find the accumulated value of the annuity using the yield-curve method.. Round your answer to 2 decimal places.

Solutions

Expert Solution

A. Accumulated value of the Annuity By using Portfolio Method:

Amount per period = 300

No of Periods = 26

Effective Interest Rate = 8% for 1st 12 periods

= 5% for balance periods(i.e 14)

Annuity factor for 1st 12 periods = 7.54

Annuity factor for remaining 14 periods = 9.9

Accumulated value = 300*7.54 +300*9.9

= 2262 + 2970

= 5232

jeff jeffy answered 2 years ago

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