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January 29, 2015

January 29, 2015

Posted by **help plzzz** on Sunday, May 1, 2011 at 4:32pm.

(a) Decide whether the problem relates to an ordinary annuity or an annuity due.

1

annuity due

ordinary annuity

.

(b) Solve the problem.

- finite math -
**MathMate**, Sunday, May 1, 2011 at 5:30pm1.

Note: "...pays $5,000 at the**beginning**of each month..."

Should that ring a bell?

2.

To find the present value of the annuity due, we can consider it as the sum of the first payment (immediate) and an ordinary annuity with one payment less (the last one).

Thus:

n=20*12-1=239

R=5000

i=7.7%/12

P=R + R(1-(1+0.077/12)^(-239))/(0.077/12)

=5000+5000(1-0.21682)/0.006416667

=5000+5000*122.0539

=5000+610269.5

=$615,269.50

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