Exam 10: Annuities: Future Value and Present Value

Calculate the future value of an ordinary annuity consisting of monthly payments of $300 for five years. The rate of interest was 3% compounded monthly for the first two years and will be 4.5% compounded monthly for the last three years.

Determine the present value of the ordinary annuity:

If money can earn 6% compounded monthly, how much more money is required to fund an ordinary annuity paying $200 per month for 30 years than to fund the same monthly payment for 20 years?

Kristina is deciding whether to deposit $1,000 per year for 10 years into an RRSP, or to wait five years, and then deposit $2,000 per year. If interest is 4.25% compounded yearly, which option should Kristina choose? What is the economic advantage of her choice?

Mr. Smith made 24 monthly deposits of $250 into an account that earns 8% compounded quarterly. How much will be in the account three years after his last deposit?

You can purchase a residential building lot for $60,000 cash or for $10,000 down and month-end payments of $1,000 for five years. If money is worth 7.5% compounded monthly, which option should you choose?

Terri and Larry plan to invest $5,000 at the end of each year in an individual retirement account earning a rate of return of 11% compounded annually. What will be the value of the account after 15 years?

Roger spends $60 per month on beer and $60 per month on cigarettes. He is going to quit smoking and cut his beer expense in half by making his own beer at the local U-Brew. At the end of every month the money he saves is going to go into an investment plan earning 12% compounded monthly. How much money should he have after 40 years?

A court-ordered award for family support calls for payments of $800 per month for five years, followed by payments of $1,000 per month for 10 more years. If money is worth 6% compounded monthly, what is the economic value of the award one month before the first payment?

Equipment with a fair value of $625,000 and zero residual value is to be leased through annual lease payments made at the start of each year over 10 years. If interest is 6% compounded quarterly, determine the value of the annual lease payments.

Determine the future value:

The rate of return offered by Reliance Insurance Co. on its 20-year annuities is 4.8% compounded monthly. Thom wishes to purchase an annuity from Reliance that will provide him with month-end payments of $1000 for the next 20 years. How much will Reliance charge Thom for this annuity?

Cliff has a business bank loan in which he makes quarterly payments of $2821.40. The loan is for five years, at 4.75% compounded semi-annually. What was the amount of the loan? What amount of interest will Cliff pay on his loan?

Mr. Eusanio contributed $1,500 to his RRSP on March 1 and on September 1 of each year for 25 years. The funds earned 6% compounded monthly for the first 10 years and 7% compounded annually for the next 15 years. What was the value of his RRSP after his contribution on September 1 of the 25^th year?

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

What is the present value of monthly loan payments of $250 for five years, if interest is 7.5% compounded monthly?

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

Calculate the present value of an ordinary annuity consisting of payments of $5,000 each, made at the end of every three months for six years. Assume that money is worth 7.2% compounded quarterly.

Classify the type of annuity described in the following scenario. A mortgage carrying an interest rate of 3.75% compounded semiannually will be repaid over 25 years with payments of $1575.00 at the end of every month.

Your client has systematically invested $1,000 at the end of each half-year for the past 17 years. The invested funds have earned 6.4% compounded semi-annually. What is the value of your client's investments today? (Taken from CIFP course materials.)