# the purchase of an annuity

1. Barbara wants to buy a car when she graduates from Central University 4 years from now. She believes that she will need $29,200 to buy the car.

(a) Calculate how much money Barbara must put into her savings account today to have $29,200 in 4 years, assuming she can earn 10% compounded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,975.)

(b) Calculate how much money Barbara must put into her savings account today to have $29,200 in 4 years, assuming she can earn 10% compounded semiannually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,975.)

2. George is planning for his retirement this year. One option that has been presented to him is the purchase of an annuity that would provide a $47,000 payment each year for the next 17 years.

(a) Calculate how much George should be willing to pay for the annuity if he can invest his funds at 6%. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)