[south0085]

Becker Question –

The answer tells me to take 1,000,000 divided by 5.11 = 195,695 because it’s an anuity in advance. But in my head, when I read this questions it looks like an ordinary annuity. Ashe makes the first payment on September 1st, which is at the end of the period. Or is September 1st the beginning of the period? Then it should end on October 31….. ahhhh! I can’t get this! What am I missing?

On March 15, 1990, Ashe Corp. adopted a plan to accumulate $1,000,000 by September 1, 1994. Ashe

plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually.

Ashe made the first deposit on September 1, 1990. Future value and future amount factors are as

follows:

Future value of 1 at 10% for 4 periods 1.46

Future amount of ordinary annuity of 1 at 10% for 4 periods 4.64

Future amount of annuity in advance of 1 at 10% for 4 periods 5.11

Ashe should make four annual deposits (rounded) of:

a. $250,000

b. $215,500

c. $195,700

d. $146,000

[KERI0323]

It seems to me that since he made the first deposit on Sept 1, 1990 and there is a total of 4 to be made then the following would apply:

Sept 1, 1991 payment 2

Sept 1, 1992 payment 3

Sept 1, 1993 payment 4

Looking at this schedule, Sept 1 would be the beginning of the period with an end date of August 31, 1994 (accumulate 1,000,000 by Sept 1, 1994). I take this to mean that the payment received on Sept 1 is for the period of Sept 1 – August 31 of the following year which would be an annuity in advance. Hopefully this helps and hopefully I'm not completely wrong, if someone else posts please correct me.

BEC 10/11/2010 77
AUD 11/30/2010 81
REG 02/25/2011 78
FAR 11/28/2011 74,68, 83 and DONE!!! NTS LA #460

[Anonymous]

I found the easiest way to determine this is take the 1 million and divide it by the annuity amounts: 1,000,000 / 4.64 comes to 215,517 which ends up being less than 1 million when you multiply 215,517 by 4.64. That leaves the 1,000,000 / 5.11 which comes to 195,695. Multiply that by 5.11 and you come to 1,000,027.

[Author]

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