Your bank pays 8% interest, compounded quarterly. Use Table 12-2 from your text to find how much you should deposit now to yield an annuity payment of $1,300 at the BEGINNING of each three months, for 2 years.
A) $9,713.59
B) $10,823.13
C) $9,523.13
D) $8,413.59

Question

Quizplus · Accepted Answer

The future value of an annuity is given by the formula:FV = PMT * [(1 + r/n)^(n*t) - 1] / (r/n)where:PMT is the payment amountr is the annual interest raten is the number of compounding periods per yeart is the number of yearsIn this case, we have:PMT = $1,300r = 8% = 0.08n = 4 (since the interest is compounded quarterly)t = 2Plugging these values into the formula, we get:FV = $1,300 * [(1 + 0.08/4)^(4*2) - 1] / (0.08/4)= $1,300 * [(1.02)^8 - 1] / 0.02= $1,300 * [1.169858 - 1] / 0.02= $1,300 * 0.084929= $110.40Therefore, we need to deposit $110.40 now to yield an annuity payment of $1,300 at the beginning of each three months, for 2 years.

Your Bank Pays 8% Interest, Compounded Quarterly