Determine the annual interest rate that is needed for the following annuities to accumulate to $25,000. Assume payments are made at the end of each period.
1. Annual payments of $4,095 for five years, interest compounded annually.
2. Semiannual payments of $5,715 for two years, interest compounded semiannually.
3. Quarterly payments of $1,864 for three years, interest compounded quarterly.
In an annuity formula, the interest rate is used as per the period of compounding or period of payment. If compounding is semi-annual, semi-annual interest rate is used to derive the required component from the formula.
Answer and Explanation: 1
The computation of annual interest rates is as follows by using the future value, periodic payment, number of years (t) and the number of compounding...
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fromChapter 2 / Lesson 7
An annuity is a fixed amount of income paid at regular intervals, such as monthly or quarterly. Learn the definition and formula for annuity, review examples of annuities, and understand how to determine the value of annuities.