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Unformatted text preview: Exercises 10.1 Identify the type of annuity and calculate the number of payments during the term in the following problems: Exercise 10.1, Solution 1: Payments are made at the end of every month and compounding period (quarterly) = payment period (quarterly). Therefore, this is an ordinary simple annuity. Payment interval is 3 months. In one year, Ronda would have to make 3 12 = 4 payments Therefore, number of payments in 5 years, 9 months (5.75 years) = 4 5.75 = 23 payments. Exercise 10.1, Solution 3: Payments are made at the end of every month and compounding period (semiannually) payment period (monthly). Therefore, this is an ordinary general annuity. Payment interval is one month. In one year, Mike would receive 1 12 = 12 payments Therefore, number of payments in 15 years = 12 15 = 180 payments. Exercise 10.1, Solution 5: Payments are made at the beginning of every month and compounding period (quarterly) = payment period (quarterly). Therefore, this is a simple annuity due. Payment interval is 3 months. In one year, Mary would have to make 3 12 = 4 payments Therefore, number of payments in 2 years = 4 2 = 8 payments. Exercise 10.1, Solution 7: Payments are made at the beginning of every month and compounding period (annually) payment period (monthly). Therefore, this is a general annuity due. Payment interval is one month. Therefore, number of payments in 3 years, 5 months (3 12 + 5 = 41 months) is 1 41 = 41 payments. Exercise 10.1, Solution 9: This forms two different annuities. 1st annuity for 6 years with beginningofmonth payments (PMT = $280) Payment period (monthly) compounding period (annually) Therefore, it is a general annuity due. Payment interval is one month. Therefore, number of payments in 6 years (6 12 = 72 months) is 1 72 = 72 payments. 2nd annuity for 2 years with monthend payments (PMT = $580) Payment period (monthly) compounding period (semiannually) Therefore, it is an ordinary general annuity. Payment interval is one month. Therefore, number of payments in 2 years (2 12 = 24 months) is 1 24 = 24 payments. 2 Exercises 10.2 Exercise 10.2, Solution 1: a. This is an ordinary simple annuity because: Payments are made at the end of each payment period (monthly) Compounding period (monthly) = payment period (monthly) n = 12 payments/year 5 years = 60 monthly payments j = 6% = 0.06, m = 12 m j i = = 12 06 . = 0.005 per month  + = i i PMT FV n 1 ) 1 (  + = 005 . 1 ) 005 . 1 ( 50 60 = $3488.501525 = $3488.50 N I/Y P/Y C/Y PV PMT FV 60 6 12 12 50 ? From the calculator computations shown, we get the FV = 3488.501525 Therefore, the accumulated value of her money at the end of the period in her savings account is $3488.50....
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This note was uploaded on 04/04/2012 for the course MATH 1052 taught by Professor Kit during the Winter '12 term at Fanshawe.
 Winter '12
 Kit

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