Annuity Investment I Would Consider

Annuity Investment I Would Consider - AnnuityInvestmentI1...

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Annuity Investment I     1 Unit 7: Annuities - Project You must show your work on all problems.  You may type your answer right into this  document. Total points for project:  45 points.  Projects must be submitted as a Microsoft Word document and uploaded to the  Dropbox for Unit 1 All Projects are due by Tuesday at 11:59 PM ET of the assigned Unit. NOTE:  Project problems should not be posted to the Discussion threads. Questions on  the project problems should be addressed to the instructor by sending an email or by  attending office hours. Part I.   Basic Computations 1. Mike’s Sport Shop deposits $3,600 at the end of each year for 12 years at 7%  annual interest.  a. How much will this ordinary annuity be worth at the end of the 12 years?  (5  points)  Using the provided Chart at crossreference of 12 periods and 7% at  17.88845($3,600)= $ 64,398.42 Answer:  FV ord.annuity =PMT*[(1+R) N -1]/R  = $3,600*[(1+.07) 12 -1]/.07= $ 64,398.42 End-of-year 1 = $3,600  (no interest earned Y1) End-of-year 2 = $3,600 + $3,600(1.07) =$7,452 End-of- year 3 = $3,600 + $7,452(1.07) =$11,573.64 End-of-year 4 = $3,600 + $11,573.64(1.07) = $15,983.79 End-of-year 5 = $3,600 + $ 15,983.79(1.07) =$20,702.66 End-of-year 6 = $3,600 + $20,702.66(1.07) = $25,751.85 End-of-year 7 = $3,600 + $25,751.85(1.07) =$31,154.48 End-of-year 8 = $3,600 + $31,154.48(1.07) =$36,935.29 End-of-year 9 = $3,600 + $36,935.29(1.07) =$43,120.76 End-of-year 10 = $3,600 + $43,120.76(1.07) = $49,739.21 End-of-year 11 = $3,600 + $49,739.21(1.07) =$56,820.96 End-of-year 12 = $3,600 + $56,820.96(1.07) =  $64,398.42  
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Annuity Investment I     2 b. How much more will this annuity be worth (annuity due) if Mike deposits the  money at the beginning of each year instead of at the end of each year?   (5  points)  Answer:  FV annuity.due =PMT*[(1+R) N -1](1+R)/R  = $3,600*[(1+.07) 12 -1] (1+.07)/.07= $68,906.31 End-of-year 1 = $3,600(1.07)=$3,852  (interest was earned Y1) End-of-year 2 = ($3,600 + $3,852)(1.07) =$7,973.64 End-of- year 3 = ($3,600 + $7,973.64)(1.07) =$12,383.79
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