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Chapter 6: Q5Q (page 301)

Question:The following are a number of values taken from compound interest tables involving the same number of periods and the same rate of interest. Indicate what each of these four values represents. (a) 6.71008. (c) .46319. (b) 2.15892. (d) 14.48656.

Short Answer

Expert verified

6.71008 shows the present value, 0.46319 shows the future value, 2.15892 shows the present value, and 14.48656 shows the future value of the ordinary annuity.

Step by step solution

01

Step-by-Step solution Step 1 Definition of the ordinary annuity

Ordinary annuityrefers to a series of frequent or regular payments made at the end of each period.Periods can be monthly, quarterly, half-yearly, and yearly.

02

Values representation

The four values mentioned in the question indicates the following:

6.71008 shows the present value of an ordinary annuity at an 8% interest rate for 10 periods (Table 6-4)

0.46319 represents thefuture valueof 1 at 8% for 10 periods.

2.15892 indicates the present value of 1 at 8% for 10 periods

14.48656 represents the future value of the ordinary annuity at 8% for 10 periods

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