Search this course Chapter 5 Assignment Attention: Due to a bug in Google Chrome

Question

Search this course Chapter 5 Assignment Attention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more 7. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. O An annuity that pays $500 at the end of every six months O An annuity that pays $1,000 at the end of each year O An annuity that pays $1,000 at the beginning of each year O An annuity that pays $500 at the beginning of every six months You bought an annuity selling at $6,240.89 today that promises to make equal payments at the beginning of each year for the next six years (N). If the annuity's appropriate interest rate (1) remains at 8.00% during this time, then the value of the annual annuity payment (PMT) is You just won the lottery. Congratulations! The jackpot is $85,000,000, paid in six equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won assuming annual interest rate of 8.00%.

Explanation / Answer

1.

Correct option is > An annuity that pays $1,000 at beginning of each year (3rd option)

Working: Assume interest rate 6% annual and 3% half yearly for case of semiannual

Set Calculator of END mode:

Using financial calculator BA II Plus - Input details:

1

2

I/Y = Rate =

                3.000000

                6.000000

PMT =

-$500.00

-$1,000.00

N = Number of years remaining x frequency =

20

10

FV = Future Value =

$0.00

$0.00

CPT > PV = Present value =

$7,438.74

$7,360.09

Set calculator on BEGIN mode:

Using financial calculator BA II Plus - Input details:

3

4

I/Y = Rate =

                6.000000

                3.000000

PMT =

-$1,000.00

-$500.00

N = Number of years remaining x frequency =

10

20

FV = Future Value =

$0.00

$0.00

CPT > PV = Present value =

$7,801.69

$7,661.90

2.

Set your Calculator on BEGIN mode:

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$0.00

PV = Present Value =

-$6,240.89

I/Y = Rate / Frequency =

8.000000

N = Number of years x frequency =

6

CPT > PMT = Payment =

$1,250.00

3.

Set your Calculator on BEGIN mode:

Using financial calculator BA II Plus - Input details:

Today

I/Y = Rate =

              8.000000

PMT = -85000000/6 =

-$14,166,666.67

N = Number of years remaining x frequency =

6

FV = Future Value =

$0.00

CPT > PV = Value or Present value =

$70,730,058.86

Using financial calculator BA II Plus - Input details:

1

2

I/Y = Rate =

                3.000000

                6.000000

PMT =

-$500.00

-$1,000.00

N = Number of years remaining x frequency =

20

10

FV = Future Value =

$0.00

$0.00

CPT > PV = Present value =

$7,438.74

$7,360.09

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.