4. Present value of an annuity - Consider the following cases. Case Amount of an

Question

4. Present value of an annuity - Consider the following cases.

Case    Amount of annuity    Interest rate              Period (years)

A          $ 12,000                                 6%                              4

B          55,000                                    11 %                           16

C          700                                         19%                            10

D         140,000                                  4%                              8

E          22,500                                    9%                              6

a. Calculate the present value of the annuity, assuming that it is

(1) An ordinary annuity.

(2) An annuity due.

b. Compare your findings in parts a(1) and a(2). All else being identical, which type

of annuity

Explanation / Answer

(

(1) Ordinary Annuity

(2) Annuity Due

FVAk%,n = PMT

(

(1) Ordinary Annuity

(2) Annuity Due

FVAk%,n = PMT

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