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Yamaha Inc. hires a new chief financial officer and promises to pay him a lump-sum bonus four years after he joins the company. The new CFO insists that the company invest an amount of money at the beginning of each year in a 7% fixed rate investment fund to insure the bonus will be available. To determine the amount that must be invested each year, a computation must be made using the formula for:A. The future value of a deferred annuity.
B. The future value of an ordinary annuity.
C. The future value of an annuity due.
D. None of the above is correct.

Respuesta :

Answer:

The correct answer is letter "C": The future value of an annuity due.

Explanation:

The future value of an annuity due is a tool to measure the future value of an amount of money that is intended to be provided starting each payment period. Calculating this type of payment implies mixing the future value of money and annuity due computations. The future value of an annuity due is calculated using the following formula:

[tex]FV = C x [\frac{(1 + r)^{n} - 1}{r} ] x (1 + r)[/tex]

Where:

  • C = Cash value of payments made at the beginning of each payment period
  • r = Interest rate
  • n = Number of payments

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