Exam 10: Annuities: Future Value and Present Value

An income annuity with quarterly payments earns 6% compounded monthly. What is the value of c? What is the approximate value of the periodic rate of return for one payment interval? Will the correct value be larger or smaller than your estimate? Explain.

Micheline wishes to purchase a 25-year annuity providing payments of $1,000 per month for the first 15 years and $1,500 per month for the remaining 10 years. Sovereign Insurance Co. has quoted her a rate of return of 5% compounded annually for such an annuity. How much will it cost Micheline to purchase the annuity from Sovereign?

Jennifer already has $15,500 saved for a down payment for a house and she plans to save another $400 at the end of each month for the next three years. If she earns 8.4% compounded monthly how large will her down payment be in three years?

You can purchase a residential building for $100,000 cash or $20,000 down and quarterly payments $3,000 for 10 years. The first payment would be due three months after the purchase date. If money can earn 10% compounded quarterly during the next 10 years, which option should you choose?

Gabriela's monthly payments of $567.89 will pay off her mortgage loan in 7 years and 5 months. The interest rate on her mortgage is 6.6% compounded monthly. What is the current balance on the loan?

Calculate the periodic interest rate that matches the payment interval for each annuity (to the nearest 0.001%):

Calculate the periodic interest rate that matches the payment interval for each annuity (to the nearest 0.001%):

$500 is contributed at the beginning of each period on a semi-annual basis for 5 years. If the rate of interest is 5% compounded semi-annually, determine how much interest was earned over this time.

Kingston Engineering Services (KES) acquired a backhoe machine under a capital lease agreement. KES pays the lessor $2700.00 at the beginning of every three months for 7 years. If KES can obtain seven-year financing at 6% compounded quarterly, what long term liability will initially be recorded?

What amount will an ordinary annuity be worth in 25 years if quarterly payments of $1,750 are made and the interest rate is 14% compounded quarterly for the first 15 years and 10% compounded quarterly for the final 10 years?

If you make 30 semi-annual deposits of $2,000 into a fund that earns 10% compounded quarterly, how much money will be in the fund two years after the last deposit?

Determine the future value in year 8 of $3,000 annual payments received in years 2, 4 and 6 given an interest rate of 7% compounded annually.

What amount would you have to invest now at 7% compounded annually in order to make withdrawals of $20,000 once per year for 25 years? The first withdrawal is to be made one year from now.

Assume that your client invests $1,000 at the end of each of the next three years. The investments earn 8% compounded annually. What is the future value at the end of the three years? (Taken from CIFP course materials.)

The Montreal Canadiens have just announced the signing of Finnish hockey sensation Gunnar Skoroften to a 10-year contract at $3 million per year. The media are reporting the deal as being worth $30 million to the young Finn. Rounded to the dollar, what current economic value would you place on the contract if Skoroften will be paid $250,000 at the end of each month and money can earn 6% compounded monthly?

Determine the future value:

Charlene has made contributions of $3,000 to her RRSP at the end of every half year for the past seven years. The plan has earned 9% compounded semi-annually. She has just moved the funds to another plan earning 7.5% compounded quarterly, and will now contribute $2,000 at the end of every three months. What total amount will she have in the plan five years from now?

Determine the future value (accurate to the cent) of the ordinary general annuity:

What will be the amount in an RRSP after 25 years if contributions of $3,000 are made at each year-end for the first seven years and month-end contributions of $500 are made for the subsequent 18 years? Assume that the plan earns 8% compounded quarterly for the first 12 years and 7% compounded semi-annually for the next subsequent years.

Valerie has made investments of $10,000 at the end of every three months for the last 8 years. She has earned 11% compounded quarterly? What is the value of the investments today?