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FUTURE VALUE OF AN ANNUITY

Find the future values of the following ordinary annuities:

FV of $500 paid each 6 months for 5 years at a nominal rate of 8% compounded semiannually. Round your answer to the nearest cent. $

FV of $250 paid each 3 months for 5 years at a nominal rate of 8% compounded quarterly. Round your answer to the nearest cent. $

These annuities receive the same amount of cash during the 5-year period and earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part a. Why does this occur?

-Select-The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a).The annuity in part (a) is compounded less frequently; therefore, more interest is earned on previously-earned interest.The annuity in part (a) is compounded more frequently; therefore, more interest is earned on previously-earned interest.The annuity in part (b) is compounded less frequently; therefore, more interest is earned on previously-earned interest.The annuity in part (b) is compounded more frequently; therefore, more interest is earned on previously-earned interest.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92818209

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