Ibama received a ten-year annuity. It paid $100 at the end of each quarter for the first four years, and $35 each month for the
remaining six years. Express the value at the time of the last payment in terms of annuity symbols introduced in this section if the annual effective interest rate is i for the first four years and j for the following six years. Evaluate if i D 3% and j D 4:5%.
1 answer:
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Answer:
- <u><em>No, he will not have enough money to buy his delivery truck at the end of 6 years.</em></u>
Explanation:
To find how much<em> money Earl Mille</em>r, <em>owner of Papa Gino's franchise</em>, will have in <em>6 years</em>, you must calculate the value of the <em>$20,000</em> that he <em>invests</em> at the <em>5% compounded semiannually:</em>
- Semianual compounded interest: 5% / 2 = 0.05/2 = 0.025
Equation:
Where r/n was already calculated: r/n = 0.05/2 = 0.025; and t is the number of years: 6.
Hence the value of the money invested is less than the value of the truck, and <em>he will not have enough money to buy his delivery truck at the end of 6 years.</em>