I. Find the future values of the following ordinary annuities

$400 FV at 12% nominal rate every 6 months for 5 years, semi-annually compounded

$200 PV at 12% nominal rate every 3 months for 5 years, compounded quarterly

The annuities described in sections a and b have the same total amount of money paid to them over the 5-year period and both earn interest at the same nominal rate, but the annuity in section b earns $101.75 more than in section a. for 5 years. Why is this happening?

ii. What is the present value of $100 per year perpetuity if the appropriate discount rate is 7%? What happens to the present value of the continuum if interest rates in general double and the appropriate discount rate increases to 14%?

iii. Ralph Renner borrowed $30,000 to buy a new sports car. He took out a 60-month loan and car payments are $761.80 per month. What is the effective annual rate (EAR) on Ralph's loan?

iv. Joe Ferro's uncle will give him $250 a month for the next two years, starting today. If Joe deposits each payment in an account that pays 6% compounded monthly, how much will he have at the end of three years?

Answer rating: 100% (QA)

I To find the future values of the annuities we can use the future value of an ordinary annuity formula a 400 FV at 12 nominal rate every 6 months for 5 years semiannually compounded The nominal rate ... View the full answer