144 Chapter 4 AnnuitiesEXERCISES 4.1
A. The Defi nition of an AnnuityDetermine whether or not each of the following situations describes an annuity. If the situation is not an annuity, explain why it
is not.- A car lease requires monthly payments of $235.94 for 5 years.
- Your cell phone bill.
- The money Adam pays for groceries each week.
- Ashok bought a guitar from his brother for $350. Since he didn’t have the money to pay for it up front, his brother
agreed that he could pay him $25 a week until his payments add up to $350. - Caries’ Candy Counter pays $1,400 a month in rent for its retail store.
- The rent for the Tastee Lard Donut Shoppe is $850 a month plus 2% of the monthly sales.
- Cheryl pays for her son’s day care at the beginning of every month. Her provider charges $35 for each day her son is
scheduled to be there during the month. - Every single morning, rain or shine, Cieran walks to his favorite coffee shop and buys a double redeye latte.
- According to their divorce decree, Terry is required to pay his ex-wife $590 a month in child support until their daughter
turns 21. - In response to her church’s annual stewardship campaign, Peggy pledged to make an offering of $20 each week.
B. Present and Future ValuesEach of the following problems describes an annuity. Determine whether the amount indicated is the annuity’s present value
or future value.- Artie bought a policy from an insurance company that will pay him $950 a month guaranteed for the next 20 years. Is
the amount he paid a present value or future value? - The Belcoda Municipal Electric Company expects that in 5 years’ time it will need to make signifi cant upgrades to its
equipment. In order to set aside enough money to pay these expenses, the utility has begun depositing $98,000 each
quarter into an investment account. Is the amount they are trying to accumulate a present or future value?