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3. Alternatively (good solution E6P though) we could use the graph
The graph is saying if you deposit $1 per period at an interest rate of r% per period, what the present value is
We know the interest rate is 4% per year so that means 2% per half year (interest compounded bi-annually)
There are 6 periods (6 half years in 3 years)
So $1 deposited per half-year at 2% per period is worth $5.601. Multiply it by 9000 (the amount deposited per half-year) and you get the same answer D
They don't use annuity formulae nor have annuity methods. They
must read a table that's been given to them.
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To read the table, the annuity factor is dependent on r and n.
n is the number of periods, and is equal to 6 as we deposit twice every year, for three yaers.
r is the rate per half-annum. 4% per annum becomes 2% per half year.
The annuity factor gives the present value of just $1. So if we want the present value of $9000 we have to multiply 9000 to that value on the table.
(That being said, I am very much annoyed at how they use "compounded biannually" to represent what's actually "semi-annual compounding". I have no idea where the logic works here.)