Keep in mind that regular annuities are assumed to take place at the end of the...

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Keep in mind that regular annuities are assumed to take place atthe end of the period. So when you make a car or house payment,while you make the payment on the first day of the month you areactually paying the interest for the past month. It's also veryimportant to understand that interest rates are quoted as an annualrate, but if any compounding takes place more than once each yearyou must adjust your interest to use the tables. So a 10% interestrate for payments that happen each 6 months or semi-annually wouldrequire that you use the 5% column. 1. If you invest $5,000 at theend of each 6 month period beginning in 6 months,for 5 years at 8%interest, how much will you have at the end of the 5 years. Don'tforget to adjust your interest rate when you go to the table aswell as your number of periods.

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4.4 Ratings (779 Votes)

Interest rate = 8 % p.a. or 8 %/2 = 4 % semiannually

Number of periods = 5 years x 2 periods = 10 Periods

Future value of annuity = Annual payment x FVIFA (Periodic rate, number of periods)

= $ 5,000 x FVIFA (4 %, 10)

= $ 5,000 x 12.006

= $ 60,030

Fund size will be $ 60,030 in 5 years.

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Transcribed Image Text

Keep in mind that regular annuities are assumed to take place atthe end of the period. So when you make a car or house payment,while you make the payment on the first day of the month you areactually paying the interest for the past month. It's also veryimportant to understand that interest rates are quoted as an annualrate, but if any compounding takes place more than once each yearyou must adjust your interest to use the tables. So a 10% interestrate for payments that happen each 6 months or semi-annually wouldrequire that you use the 5% column. 1. If you invest $5,000 at theend of each 6 month period beginning in 6 months,for 5 years at 8%interest, how much will you have at the end of the 5 years. Don'tforget to adjust your interest rate when you go to the table aswell as your number of periods.