Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 6: Q13Q (page 301)

Question:Explain how the future value of an ordinary annuity interest table is converted to the future value of an annuity due interest table.

Short Answer

Expert verified

The future value of an ordinary annuity is converted to the future value of an annuity due by multiplying with corresponding value by one plus the interest rate

Step by step solution

01

Step-by-Step solutionsStep 1 Annuity due definition

Annuity due refers to an annuity, the payment for which is due just after the starting of each period. Periods can be yearly, half-yearly, and quarterly

02

Conversion to annuity due

The future value of an annuity due can be converted from the future value of an ordinary annuity. The process of in future ordinary annuity interest table is to multiply the corresponding future values of the ordinary annuity by one plus the interest rate.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Recently, Glenda Estes was interested in purchasing a Honda Acura. The salesperson indicated that the price of the car was either \(27,600 cash or \)6,900 at the end of each of 5 years. Compute the effective-interest rate to the nearest percent that Glenda would pay if she chooses to make the five annual payments.

Chris Spear invested $15,000 today in a fund that earns 8% compounded annually. To what amount will the investment grow in 3 years? To what amount would the investment grow in 3 years if the fund earns 8% annual interest compounded semiannually?

Keith Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 2 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 2 years, by conducting some research online, Keith has developed the following estimates. Engine Overhaul Probability Estimated Cash Outflow Assessment $200 10% 450 30% 600 50% 750 10%

Instructions How much should Keith Bowie deposit today in an account earning 6%, compounded annually, so that he will have enough money on hand in 2 years to pay for the overhaul?

For each of the following, determine the expected cash flows. Cash Flow Probability Estimate Assessment (a) \( 4,800 20% 6,300 50% 7,500 30% (b) \) 5,400 30% 7,200 50% 8,400 20% (c) $(1,000) 10% 3,000 80% 5,000 10%

Consider the following independent situations. (a) Mike Finley wishes to become a millionaire. His money market fund has a balance of \(92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired \)1,000,000? (b) Assume that Sally Williams desires to accumulate \(1 million in 15 years using her money market fund balance of \)182,696. At what interest rate must Sally’s investment compound annually?
See all solutions

Recommended explanations on Business Studies Textbooks

Influences On Business

Read Explanation

Financial Performance

Read Explanation

Introduction to Business

Read Explanation

Corporate Finance

Read Explanation

Strategic Direction

Read Explanation

Human Resources

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free