What is the size of the payments that must be deposited at the beginning of each...

What is the size of the payments that must be deposited at the beginning of each 6-month period in an account that pays 5.2%, compounded semiannually, so that the account will have a future value of $170,000 at the end of 18 years? (Round your answer to the nearest cent.)

Expert Solution

Information provided:

Interest rate= 5.2%/2= 2.6%

Time= 18 years*2= 26 semi-annual periods

Future value= $170,000

The question concerns finding the value of annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This is solved using a financial calculator by entering the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in the financial to calculate the amount to be deposited at the beginning of each semi-annual period:

FV= 170,000

N= 36

I/Y= 2.6

Press the CPT key and PMT to calculate the amount of payment to be deposited at the beginning of each semi-annual period.

The value obtained is $2,835.24.

Therefore, $2,835.24 has to be deposited in the account at the beginning of each semi-annual period.

jeff jeffy answered 1 year ago

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