1. Find Future value factor for Interest rate i = 10%, Compounded (n) = 3, using Annuity Due method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
Future value factor of Annuity Due
`FVF=[((1+i)^n-1)/(i)]*(1+i)`
`=[((1+0.1)^3-1)/(0.1)]*(1+0.1)`
`=[((1.1)^3-1)/(0.1)]*(1.1)`
`=[(1.33-1)/(0.1)]*(1.1)`
`=[(0.33)/(0.1)]*(1.1)`
`=(3.31)*(1.1)`
`=3.64`
2. Find Future value factor for Interest rate i = 5%, Compounded (n) = 5, using Annuity Due method
Solution:
`i=5%=0.05` per year (Interest rate)
`n=5` years (Number of periods)
Future value factor of Annuity Due
`FVF=[((1+i)^n-1)/(i)]*(1+i)`
`=[((1+0.05)^5-1)/(0.05)]*(1+0.05)`
`=[((1.05)^5-1)/(0.05)]*(1.05)`
`=[(1.2763-1)/(0.05)]*(1.05)`
`=[(0.2763)/(0.05)]*(1.05)`
`=(5.5256)*(1.05)`
`=5.8019`
This material is intended as a summary. Use your textbook for detail explanation.
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