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WORKSHEET (3.3)

# WORKSHEET (3.3) - account earning 8.5 compounded annually...

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WORKSHEET (3.3) Annuity: An annuity is any sequence of equal periodic payments. Ordinary Annuity: Payments are generally made at the end of each period. This type of annuity is called an ordinary annuity. Term: The total time period between the beginning of the first period and the last payment is called the term of the annuity. Future Value: The sum of all payments plus all interest earned is called the future value of the annuity. 1. Suppose you deposit \$100 every 6 months into an account that pays 6% compounded semiannually. If you make 4 deposits, at the end of each interest payment period, over 2 years, how much money will be in the account after the last deposit is made? 2. What is the value of an annuity at the end of 20 years if \$2,000 is deposited each year into an

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Unformatted text preview: account earning 8.5% compounded annually? How much of this value is interest? 3. Suppose the parents of a newborn child decide that on each of the child’s birthdays up to the 17 th year, they will make an annual deposit in an account that pays 6% compounded annually. The money is to be used for college expenses. What should the annual deposit be in order for the amount in the account to be \$80,000 after the 17 th deposit? 4. Suppose you want to buy an \$80,000 car in 5 years. (a) How much should you invest now to have \$80,000 toward the purchase of a car in 5 years if the interest is 10% compounded monthly? (b) How much should the monthly deposit be to have \$80,000 available in 5 years if the interest is 10% compounded monthly?...
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