For each of the following cases, indicate (a) what interest rate columns and (b)

Question

For each of the following cases, indicate (a) what interest rate columns and (b) what number of periods you would refer to in looking up the discount rate (1) In Table 3 (present value of 1): Number of Discounts Annal Rate Years Involved per Year Case A Case B Case C 11% 11% 12% 14 10 Annually Annually Semiannually Case A Case B Case C periods periods periods (2) In Table 4 (present value of an annuity of 1): Number of Number of Frequency of Annal Rate Years Involved Payments Involved Payments Case A Case B Case C 9% 9% 1096 17 8 17 8 12 Annually Annually Semiannually Case A Case B Case C periods periods periods

Explanation / Answer

1)

Case C :-

Rate = 12% / 2 = 6%

Periods = 10 * 2 = 20

2)

Case C :-

Rate = 10% / 2 = 5%

Period = 6 * 2 = 12

Case Rate Periods A 11% 5 B 11% 14 C 6% 20

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