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Homework answers / question archive / q1- What is the future value of 8 semi-annual payments of $331, with the first payment to occur six months from today, if the interest rate is 6% p

q1- What is the future value of 8 semi-annual payments of $331, with the first payment to occur six months from today, if the interest rate is 6% p

Finance

q1- What is the future value of 8 semi-annual payments of $331, with the first payment to occur six months from today, if the interest rate is 6% p.a.? (Don't forget to calculate the semi-annual interest rate before using the annuity formula.)

 

q2- What is the present value of an annuity consisting of 6 quarterly payments of $380, with the first payment to occur three months from now, if the interest rate is 12% p.a.? (Hint: You need to calculate the quarterly interest rate before you can use the annuity formula.)

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1) Computation of Future Value of Annuity:

Future Value of Annuity = C*((1+i)^n - 1)/i

Here,

C = Cash Flows = $331

i = Interest Rate = 6%/2 = 3%

n = Number of Periods = 8

 

Future Value of Annuity = $331*((1+3%)^8 - 1)/3% = $2,943.36

 

2) Computation of Present Value of Annuity:

Present Value of Annuity = C*(1-(1+i)^-n)/i

Here,

C = Cash Flows = $380

i = Interest Rate = 12%/4 = 3%

n = Number of Periods = 6

 

Present Value of Annuity = $380*(1-(1+3%)^-6)/3% = $2,058.53

 

 

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