Question

Can I please get help with this question on future value of annuities? I also am really confused on how to do the table of values.

Answer 1

D

Explanation:

I've attached one of those tables below

I'm going to solve this using the FV annuity formula

`R(((1+i)^n-1)/(i))`

where i is the effective rate of interest

r is the payment

n is the number of periods

to find the effective rate of interest we need to divide .08/2 (because the interest is compounding once every six months)

and the number of periods is 4*2 (because there are two periods a year(

`1500(((1+.04)^8-1)/(.04))=13821.33` which is equal to D

To use the table go to the effective rate of interest (4%) and then number of periods (8)

The number is 9.2142

mulitply that by the payment (1500) and get 13821.3 (D)

*the reason that the answers are slightly different is because the annuity table rounded whereas in the formula it was more exact*

Answer 2

9514 1404 393

Answer:

D. $13,821.30

Explanation:

The table is given in terms of interest rate per period and number of periods. The table assumes that money is invested at the same interval that interest compounding occurs.

Since you're investing $1500 every 6 months for 4 years, the 8% annual interest rate becomes 8%·(6/12) = 4% interest each 6-month period. In 4 years, there are 8 periods of 6 months. So, you look for the multiplier shown in the table that is at the intersection of 4% interest and 8 periods.

That multiplier is 9.2142, so the future value is ...

FV = amount invested per period × multiplier from table

= $1500 × 9.2142 = $13,821.30

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The above is how you use the table.

You can also choose the correct answer based only on your number sense, without bothering with the table.

You are paying into the annuity 8 payments of $1500 each. That is a total input of 8 × $1500 = $12,000. You will be earning interest on that money, so the future value of the annuity is more than $12,000. Only one answer choice fits that description:

D. $13,821.30