Module 2 Sample Exam Problems #22

[psugirl2011]

An annuity pays 1 at the end of each year for n years. Using an annual effective interest rate of i, the accumulated value of the annuity at time (n+1) is 13.776. It is also known the (1+i)^n=2.476. Calculate n.

Solution
Here we have unknown n and i, which indicates that we cannot find the answer directly with the calculator. The annuity in this question is a unit annuity. We are given the accumulated at time n+1 of an n-period annuity. That accumulated value is (future value of annuity immediate)(1+i)=13.776. With some algebra we can use this to find i.

Am I missing something? Why is the accumulated value the formula for a future annuity due? When the payments are made at the end of each year.

[BLBarK]

How do you find the AV of an annuity one period after the last payment? =)

S(doubledot)-angle-n. Plug in (1+i)^n=2.476 into the formula to get d (which you can convert to i). Then you can solve for n.