Exam 13: Annuities and Sinking Funds

The value of an annuity is the series of payments and interest.

Find the value of an investment after five years for a $6,000 ordinary annuity at 8% compounded annually.

Sinking funds accumulate money in the present to accumulate a specific sum at a predetermined present date.

There is only one class of annuities.

A contingent annuity has a fixed amount of payments.

Lee Associates borrowed $60,000. The company plans to set up a sinking fund that will pay back the loan at the end of 12 years. Assuming a rate of 8% compounded semiannually, the amount to be paid into the fund each period is (use the tables in the handbook):

Mike O'Brien plans to deposit $1,250 at the end of every six months for the next eight years at 6% interest compounded semiannually. What is the value of Mike's annuity at the end of eight years?

Maturity value is equal to principal plus interest.

Connie made deposits of $2,000 at the beginning of each year for four years. The rate she earned is 5% annually. What is the value of Connie's account in four years?

How much would Howard Steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually? (Use the tables in the handbook.)

Companies that plan to retire bonds in the future could utilize sinking funds.

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

Use the tables in the handbook. Pam Reed has decided to invest $500 quarterly for five years in an ordinary annuity at 12%. As her financial advisor, calculate for Pam the total cash value of the annuity at the end of year 5.

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is (use the tables in the handbook):

An annuity is one lump sum payment.

Bram Johnson invests $500 at the end of each quarter for 10 years. The account earns 12% interest annually. What is the value of the account at the end of 10 years?

The maturity value in compounding is like the value of an annuity.

Find the value of an investment after three years on $15,000 made quarterly at 8% for (A) an ordinary annuity and (B) an annuity due. A. $201,180 B. $205,204.50

Annuities can be done manually or by computer.

Jim Hunter decides to retire to Florida in 10 years. What amount should Jim invest today so that he will be able to withdraw $25,000 at the end of each year for 30 years after he retires? Assume he can invest money at 9% interest compounded annually.