Question

the beginning of the first month and increases by $300 for each month thereafter MARR What is the equivalent AW of a two year contract that pays 55 500 compounded monthly The AW is closest to O A $109,519 OB. $70,040 OC. $145,534 OD. $41.882 OE $109,808

Answer 1

The statement is a gradient series. The interest i= 6% = 6%/12 = 0.5% = 0.005 ; n = 12*2 = 24 months

Annual Worth = A' + G(A/G,i,n)

Annual Worth = 5500 + 300 [(1/i) - (n/(1+i)^n - 1)

Annual Worth = 5500 + 300 [(1/0.005) - (24/(1+0.005)^24 - 1)

Annual Worth = 8378.32

Equivalent Annual worth = 8378.32(P/A,i,n) = 8378.32(P/A,6,12)

Equivalent Annual worth = 8378.32 {[(1+i)^n - 1] - [i(1+i)^n]}

Equivalent Annual worth = 8378.32 {[(1+0.06)^12 - 1] - [0.06(1+0.06)^12]}

Equivalent Annual worth = $70243.56

The nearest answer is option B = $70040

Note: The variation in the answer may be due to rounding of decimal places