Annuity
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- Third Problem, In order to have a fund of $1,000,000 at the end of 12 years, equal deposits every six months must be made. Find the semi-annual payment if interest is at 6% compounded annually.
- The given are P=1000000, r=0.06, m1=2, m2=1, t=12, n=-24, look for J and solve for the total payment.
- J=(1+0.06/1)^1/2=J=0.0295630140987.Let's substitute and solve 1000000/(1-(1+0.0295630140987)^-24. The semi annual payment is $58,768.81.
- Last problem A motorcycle is for sale $ 60,500 cash or on installment terms of $ 3,000 per month for 2 years at 12% compounded annually. If you were the buyer, what would you prefer, cash or installment?
- The given are R=3000, m1=12, m2=1, r=0.12, n=24, t=2. Solve for the J and look for the total payment.
- J=(1+0.12/1)^1/12-1. The value of J is 0.00948879293458. 3000(1+0.00948879293458/0.00948879293458)^-24. So the Total payment of installment is $64,119.68 and if i were the buyer i would prefer cash than installment because installment is the higher price than cash.
- Thank you sir
- Well done the two of you. The two of you are smart. Impressive
- Thanks sir
- Well then see you tomorrow for lesson 3.
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