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Im having problems trying to figure out how to solve this problem.
The formula for Future Value of an Ordinary Annuity is
FV=PMT( (1+I)^n -1)/I)
The problem isFind the I (rate per period) and the N( number of Periods) for each annuity.
Quarterly deposits of $500 are made for 20 years into an annuity that pays 8% coumpounded quarterly.
fv=500((1+.08/4)^20-1)/.08
Since it is deposited quarterly do i multiply 500x4? and since it is compounded quarterly do I divide both interest by 4?
help! thanks
should beQuote:
Originally Posted by lunaj
fv=500((1+.08/4)^(20*4)-1)/(.08/4)
Thanks!
When a question says that a certain amount is deposited x number of times a year, do i ignore that and just divide the interest and multiply n by the # compunded??
In this case $500 is deposited quarterly and the whole thing is coumpounded quarterly, so it all works out to 4.
what if $500 is deposited every month and coumpounded quarterly?
KindaQuote:
Originally Posted by lunaj
Then you have a complex or general annuity problem.Quote:
Originally Posted by lunaj
You need to convert the quarterly rate into its equivalent monthly rate.
One way of doing this is to equate the effective rate of say 8% compounded quarterly as given by
with the effective rate of j% compounded monthly which is given by
You then solve for j.
After that, you merely replace 8% with j and 4 with 12 in your corrected formula.
Do do both of these for one problem?
ex
500( 1+.08/12)^12-1/.08/12 and then i multiply this answer the same way but compunded quarterly?
im confused
should beQuote:
Originally Posted by lunaj
500[( 1+j/12)^(20*12)-1]/(j/12)
but you must first equate the right hand side of
http://www.mathhelpforum.com/math-he...3df0a8b9-1.gif
with the right hand side of
http://www.mathhelpforum.com/math-he...0da27d3f-1.gif
and solve for j.