Exam 13: Annuities and Sinking Funds

Find the value of an investment after six years for a $7,000 annuity due at 8% compounded annually.

All annuities due are based on a semiannual payment.

Block Associates borrowed $75,000. The company plans to set up a sinking fund that will repay the loan after 15 years. Assume an 8% interest rate compounded semiannually. What must Block Associates pay into the fund each period? Verify your result.

Annuities certain have a specific stated number of payments.

Alice Kate puts $2,500 in a bank at the end of every six months. The bank pays 2% compounded semiannually. Assuming Alice does this for four years, what is the total interest she will receive?

Abby's Uncle Howard has promised her a gift upon graduation from high school of $2,000 or $200 every quarter for the next three years. If the money could be invested at 6%, which offer should Abby choose? (Show your calculations.)

Sinking funds utilize the concept of compound interest.

Find the value of an investment after four years for a $7,000 ordinary annuity at 10% compounded annually.

The present value of an annuity looks from the present to the future.

The same table can be used to find the value of an annuity due if two extra periods are added along with the subtraction of one payment.

Use the tables in the handbook. Given an annuity due of $5,000, 12% semiannually for three years, what is the value of the investment at the end of three years?

Jones Co. borrowed money that is to be repaid in 12 years. So that the loan will be paid back at end of the 12th year, the company invests $8,000 at end of each year at 5% compounded annually. The amount of the original loan was (use the tables in the handbook):

Use the tables in the handbook. Alvin Roz puts $2,000 in a bond at the end of every six months. The bank pays 12%, compounded semiannually. Assuming Alvin does this for three years; calculate the amount of total interest he will receive.

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually. (Use the tables in the handbook.)

The present value of an ordinary annuity:

Alice Hall made deposits of $300 semiannually to Rey Bank, which pays 8% interest compounded semiannually. After five years Alice made no more deposits. What would be the balance in the account four years from the last deposit?

Ordinary annuity payments are made:

The amount of money one needs to invest in the future to receive a stream of payments in the present is called the present value of an ordinary annuity.

In an ordinary annuity the interest on a yearly investment starts building interest:

Lance Rice has decided to invest $1,200 quarterly for eight years in an ordinary annuity at 4%. The total cash value of the annuity at end of year 8 is (use the tables in the handbook):