Suppose you are going to receive $15,000 per year for five years. The appropriat
ID: 2820938 • Letter: S
Question
Suppose you are going to receive $15,000 per year for five years. The appropriate interest rate is 10 percent.
a. What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $
What is the present value of the payments if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $
b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $
What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $
Explanation / Answer
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$15000[1-(1.1)^-5]/0.1
=$15000*3.790786769
=$56861.80(Approx).
2.Present value of annuity due=Present value of annuity*(1+interest rate)
=$56861.80*1.1
=$62547.98(Approx).
b.
Future value of annuity=Annuity[(1+rate)^time period-1]/rate
=$15000[(1.1)^5-1]/0.1
=$15000*6.1051
=$91576.50
Future value of annuity due=Future value of annuity*(1+interest rate)
=$91576.5*1.1
=$100,734.15
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