Answer each question. Assume compounding periods (m) are years unless otherwise

Question

Answer each question. Assume compounding periods (m) are years unless otherwise stated in the problems. "T is stated as APR and n in years. You'll need to modify these for compounding periods less than a year. Assume that a payment (-c) is received each compounding period. 8 the PV of an ordinary annuity if n-8 years, C-$200, and r | | what is 2 What is the PV of an ordinary annuity if n 6 years, C $400, and r 13 |what is the FV of an annuity due if n-6years, C-$800, and r-296. 5%? 8% and there are 4 compounding period peryear? 4 What is the FV of an ordinary annuity if n 6 years, C $800, and r- s You win the lottery and are offered either $5,000,000 immediately or 20 6 You are exactly 48 years old, and plan to begin receiving Social Security 2% annual payments of $335,000 beginning immediately. The interest rate is 3%, which should you choose? payments at age 67 (full retirement age") in the amount of $2,200 per month. However, if you wait until age 70 to begin receiving your Social Security payments, you'll receive $2,720 per month. Assume an annual discount rate (APR) of 4.6%. Also, assume that you'll live to be 92 years old. What is the value of each option at age 48? Which should you plan to do? Good luck. Use Excel

Explanation / Answer

1 end of the period means ordinary annuity rate 0.05 n or nper 8 annuity 200 Present Value of annuities = PMT* [ 1- ( 1+r)^-n]/ r 200 *((1-(1.05)^-8) /0.05) 200 *( 0.323160638) /0.05) 200 *( 6.463212759) Present Value of annuities 1292.64 You can also use the PV function in excel PV(rate,NPER,PMT,FV,TYPE) 2 4 compounding period per year means quarterly compounding quarterly rate = 8%/4 = 2% n or nper 6yrs * 4 quarters = 24 PMT / annuity each compounding period 400 You can use the PV function in excel PV(rate,NPER,PMT,FV,TYPE) PV(2%,24,400) 7565.57 3 rate or r is 0.02 n or nper 6 annuity 800 Future value of Annuity due formula (annuties* ((1 + r)^n)-1) / r]) x (1+r) or You can use the FV function in excel FV(Rate, NPER, PMT, PV, Type) Type has to be 1 indicating deposits are at the beginning / annuity due FV(2%,6,800,,1) 5,147.43 4 rate or r is 0.02 n or nper 6 annuity 800 Future value of Ordinary Annuity formula/ FVIFA annuities* (((1+r)^n)-1) / r or You can use the FV function in excel FV(Rate, NPER, PMT, PV, Type) FV(2%,6,800) 5,046.50

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