The amount of an ordinary $7,500.00 annuity for 3 years at 12 percent compounded quarterly is ...

1.) $25,305.00

2.) $180,997.50

3.) $23,182.50

4.) $106,440.00

Question

Mathematics

Cassie Bass

25 November, 22:26

The amount of an ordinary $7,500.00 annuity for 3 years at 12 percent compounded quarterly is ...

1.) $25,305.00

2.) $180,997.50

3.) $23,182.50

4.) $106,440.00

+5

Answers (1)

Know the Answer?

Carlo · Answer 1

In my opinion, the answer is not in the choices given. First, we have to acknowledge that the interest rate given is not the effective interest rate instead it is called the nominal interest rate therefore we have to convert it first to an effective interest rate. We use the following formula:

Effective Interest rate = [[1 + (r/m) ]^m] - 1 where r is the nominal interest rate and m is the number of compounding times

For this case, m is equal to 4 since it is compounded quarterly.

Effective Interest rate = [[1 + (.12/4) ]^4] - 1 =.1255

We then use the calculated effective interest rate to the formula for the Compound Interest Rate Formula.

Future Value = Present Value (1 + Effective interest rate) ^ (no. of years)

Future Value = 7500 (1 +.1255) ^ (3) = 10692.96 dollars

The amount of an ordinary $7,500.00 annuity for 3 years at 12 percent compounded quarterly is ...1.) $25,305.002.) $180,997.503.) $23,182.504.) $106,440.00

The amount of an ordinary $7,500.00 annuity for 3 years at 12 percent compounded quarterly is ...

1.) $25,305.00

2.) $180,997.50

3.) $23,182.50

4.) $106,440.00