Exam 13: Annuities and Sinking Funds

Annuities can be done manually or by computer.

How much will the Van Company have to set aside each period to have $60,000 twelve years from now? Assume money is at 12% compounded semiannually.

Match the following terms with their definitions. -Ordinary annuities

Block Associates borrowed $75,000. The company plans to set up a sinking fund that will repay the loan after 16 years. Assume an 8% interest rate compounded semiannually. What must Block Associates pay into the fund each period?

Use the tables in the handbook. Bob Fraser promised to pay his son $400 semiannually for six years. If Bob can invest his money at 12% in an ordinary annuity, how much must he invest today to be able to pay his son $400 semiannually for six years?

Roger Fox made deposits of $900 semiannually to Reed Bank at the end of each period, which pays 6% interest compounded semiannually. After seven years Roger made no more deposits. What will be the balance in the account eight years after the last deposit?

Sinking funds accumulate money in the present to accumulate a specific sum at a predetermined present date.

Alice Kate puts $2,500 in a bank at the end of every six months. The bank pays 12% compounded semiannually. Assuming Alice does this for four years, what is the total interest she will receive?

Match the following terms with their definitions. -Annuity due

Use the tables in the handbook. Pam Reed has decided to invest $500 quarterly for five years in an ordinary annuity at 12%. As her financial advisor, calculate for Pam the total cash value of the annuity at the end of year 5.

What must John Sullivan invest today to receive an annuity of $6,000 for three years semiannually at a 10% annual rate? All withdrawals will be made at the end of each period.

Jorgen Grace made deposits of $250 at the end of each year for 12 years. The rate received was 6% annually. What is the value of the investment after 12 years?

Find the value of an investment after five years for a $6,000 ordinary annuity at 8% compounded annually.

Doubletree Capital Investments deposits $700 semiannually for 6 years into an account that pays 6% interest. What is the balance after the last deposit?

Robin wants to receive $2,500 at the end of each year for the next 10 years. How much should she deposit today at 5% annually?

An annuity due provides a lower final value compared with an ordinary annuity.

Lee Associates borrowed $60,000. The company plans to set up a sinking fund that will pay back the loan at the end of 12 years. Assuming a rate of 8% compounded semiannually, the amount to be paid into the fund each period is (use the tables in the handbook):

What must Bill McGuire invest today to receive an annuity of $12,000 for four years semiannually at a 10% annual rate? All withdrawals will be made at the end of each period.

Find the value of an investment after four years on $6,000 made quarterly at 8% for (A)an ordinary annuity and (B)an annuity due.

Gail Korosa decided that in six years she will leave her job in publishing and retire to Arizona. What amount should Gail invest today so that she will be able to withdraw $50,000 at the end of each year for 30 years after she retires? Assume she can invest money at 5% interest compounded annually.