A 8-year annuity of 16 $9,800 semiannual payments will begin 10.5 years from now, with the first payment coming 11 years from now. a. If the discount rate is 12 percent compounded semiannually, what is the value of this annuity eight years and six years from now?

$85,612.3; $76.194.65

Explanation:

1. First, we need to find the value of the annuity 10.5 years from now.

PV = ? (this is the value of annuity 10.5 years from now)

PMT = =9800 (Semiannual payments)

n = 8 years = 16 payments

i/r = 12% annually = 6% semiannually

FV = 0 (the annuity has no future value)

By using financial calculator, PV = $99,037.77 (value at the point 10.5 years from now)

2. Value of this annuity 8 years from now is:

= 99037.77 / (1+0.06) ^2.5 = $85,612.3

3. Value of this annuity 6 years from now is:

= 99037.77 / (1+0.06) ^ 4.5 = $76.194.65

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