Question

What is the calculation or formula for determining the 8-year annuity factor, as expressed by the equation [1 - (1 + 0.05 =$)] / 0.05?

Answer 1

The formula for determining the 8-year annuity factor is [(1 - (1 + 0.05) ^ (-8)) / 0.05]. It involves subtracting 1 from the interest rate per period, raising it to the power of the negative number of periods, subtracting the result from 1, and dividing it by the interest rate per period.

Step-by-step explanation:

The formula for determining the 8-year annuity factor is given by the equation [(1 - (1 + 0.05) ^ (-8)) / 0.05]. To explain this formula, let's break it down step by step:

1. First, we subtract 1 from (1 + 0.05) to get the interest rate per period (0.05).
2. Next, we raise this value to the power of -8 to account for the number of periods (8 years).
3. Then, we subtract the resulting value from 1 to find the annuity factor.
4. Finally, we divide the annuity factor by the interest rate per period (0.05) to get the final annuity factor.

Using this formula, you can calculate the annuity factor for an 8-year period with a given interest rate.