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Sum / Annuities question

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  1. May 23, 2009 #1
    Find the final value of a plan in which payments of $800 are made every 6 months for 3 years, earning 10% interest compounded semi-annually. The first payment is made in 6 months.

    My Answer:

    R = 800, n = 6 , i = 5%

    A = R[(1-i)^n - 1] / i

    A = 800(1.05^6 - 1) / 0.05

    A = $5441.53

    So I calculated the annuity but I am thrown off by the last sentence. Since the first payment is made in 6 months does this mean that n should really be 5 because he is missing the first 6 months of the year? Or is 6 correct since it is semi-annual for 3 years? I'm just a little tripped up on the wording and started thinking that I am incorrect assuming n = 6 due to the final sentence.

    Thanks
     
    Last edited: May 23, 2009
  2. jcsd
  3. May 23, 2009 #2

    danago

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    Gold Member

    I would say n=6, because he is payed in 6 months time and then again in 6 months after that i.e. twice in the current year. This continues for another two years, for a total of 6 payments.
     
  4. May 23, 2009 #3
    Great thanks so much. That is what I originally thought but then started to second guess myself.
     
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