Question

Question 1

1. A company borrowed $ 74,500. The company plans to set up a sinking fund that will pay back the loan at the end of 6 years. Assuming a rate of 6% compounded semiannually, find the Sinking Fund of the ordinary annuity.                                                                

2. An employee decided to invest $ 1,960 quarterly for eight years in an ordinary annuity at 20%. What is the total cash value of the annuity at end of year 8?           

3. What must YOU invest today to receive an annuity of $ 3,800 for 12 years compounded at 8% quarterly when all withdrawals will be made at the end of each period?  

Answer 1

For calculating the amounts we can either use the factor tables or use formulas. We have used both here.

A. The annuity is $5249.43

FV Factor for 12 periods @ 3% = .07046

Annuity = $74500*.07046 = $5249.43

OR

Formula

B.

Future VAlue of Annuity at year 8 = $147585.71

FVA factor for 32 periods @ 5% = 75.2988

Future Value = $1960*75.2988 = $147585.71

OR

Formula

C.

The Amount to be Invested today = $116557.85

PVA Factor for 48 periods @ 2% = 30.6731

PV of AMount to be invested = 3800*30.6731 = $116557.85

OR

Formula:

Hope this helps! In case of any clarifications, kindly use the comment box below