Reference no: EM133217409

1. Explain in your own words the difference between annuities and annuities due. What is the main thing to look for to determine if a situation is an annuity due?

2. (Take k% = 7 %) Consider two annuities that both will have 20 deposits of $500 into a savings account that both earn k% compounded quarterly. Annuity A has payments start one quarter from today and annuity B has payments start today (annuity due).

(a) How much will each annuity be worth in 5 years?  

(b) How much interest will both annuities earn?  

(c) How much extra will you earn with the annuity due?

3. Consider a perpetuity that has an interest rate of 1.2% compounded monthly. However, withdrawals will be made every three months starting three months from now. The initial amount in the account is $100,000. 

(a) Find the payment amount coming every three months.  

(b) Show that the money does not run out. Specifically, show the balance 1 month, 2 months, and 3 months from now. Then subtract the payment you found in (a). You should be left with the original amount

4. How long will it take to save $100,000 depositing $1,000 every quarter with 1.5% compounded quarterly?

5. Complete a sinking fund schedule for the following savings account. You want to save $5000 in 2 years for a trip. Interest is earned at k% compounded semi-annually. Payments are made semi-annually as well. (take k%= 7%)