Calculate the amount of each annuity.
a. $1000 deposited every six months for 6 years at 5 1/2 % compounded semi-annually
Accepted Solution
A:
To calculate the amount of each annuity, we can use the formula for the future value of an annuity.
The formula for the future value of an annuity with compound interest is:
$$A = P \cdot \left(\frac{(1+r)^n - 1}{r}\right)$$
Where: A = the future value of the annuity P = the amount deposited each period r = the interest rate per period n = the number of periods
In this case, the amount deposited each period (P) is 1000, the interest rate per period (r) is 5.5% (or 0.055), and the number of periods (n) is 6 years multiplied by 2 (since the annuity is semi-annually compounded), which equals 12.