Exam 13: Annuities and Sinking Funds

Find the value of an investment after three years on $15,000 made quarterly at 8% for (A)an ordinary annuity and (B)an annuity due.

Annuity due payments are made:

Payments in annuities are made:

Jim Hunter decides to retire to Florida in 10 years. What amount should Jim invest today so that he will be able to withdraw $25,000 at the end of each year for 30 years after he retires? Assume he can invest money at 9% interest compounded annually.

An annuity due compared with an ordinary annuity results in a:

Sinking funds utilize the concept of compound interest.

Rita Heckt wants to receive $4,200 each year for 15 years. How much must Rita invest today at 5% compounded annually?

Complete present value of an ordinary annuity: Amount of Annuity Expected Payment Interest Rate Payable Years Earned Present Value \ 16,000 Quarterly 2 12\% ?

Scott deposits $5,000 at the end of each year into an account for five years. Assuming 6% interest annually, what is the value of his account in five years?

An ordinary annuity results in the deposit or payment being made at end of the period.

Ordinary annuity payments are made:

The same table can be used to find the value of an annuity due if two extra periods are added along with the subtraction of one payment.

Abby's Uncle Howard has promised her a gift upon graduation from high school of $2,000 or $200 every quarter for the next three years. If the money could be invested at 8%, which offer should Abby choose? (Show your calculations.)

Find the value of an investment after six years for a $7,000 annuity due at 8% compounded annually.

Jim Hunter is ready to retire to Florida. What amount should Jim invest today so that he will be able to withdraw $25,000 at the end of each year for 30 years after he retires? Assume he can invest money at 9% interest compounded annually.

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is (use the tables in the handbook):

Lisa Schermer wants to receive $5,000 a year for 12 years. How much must she invest today at 12% interest compounded annually?

What must Bill McGuire invest today to receive an annuity of $9,000 for four years semiannually at an 8% annual rate? All withdrawals will be made at the end of each period.

Use the tables in the handbook. At the beginning of each year, Dick Raven invests $700 semiannually at 8% for eight years. What will be the cash value of this annuity due at the end of year 8?

Annuities certain have a specific stated number of payments.