Ordinary annuity

Find the present value of an ordinary annuity which has deposits of $10279 semiannually for 5 years at
7.6% compounded semiannually.

Given:

P= present value = ?

R= Periodic Payment= 10279

t= time (in years)= 5

r= annual interest rate = 0.076

m= #compounding periods/ yr = 2

i= r/m =0.038

n=mt= 10

Solution:

P=R
[ 1− (1+i )−n ]
i

P=10279
[ 1− (1+0.038 )−10 ]
0.038
P=10279 [ 8.192256 ]
P= $84,208.20
Annuity due

I will invest $500 per quarter for my retirement at 7.3% compounding quarterly for 32 years. I have a

choice of making that payment of $500 at the beginning or the end of the quarter (annuity due). In

which account will I have more money and by how much? Which account will earn the most interest and

by how much?

Solution:

P=R {
[ 1−( 1+i )−n ]
−R }
i

0.073 4 (32)+1
[( ]
P=500
{ 1+
4 )
0.073
4
−1
−500
}
P = $254543.36
Deferred annuity
A man P187400 from a bank with interest at 5% compounded annually. He agrees to pay his obligations
by paying 8 equal annual payments, the first being due at the end of 10 years. Find the annual
payments.

Given:

P= 187400

I= 5%

n= 8 years

k= 10

A=?

Solution:

1− (1+ 0.05 )−8

187400= A [ 0.05 ]( 1+0.05 )−9

A=44980.56