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

Question

For each of the following cases, indicate (a) to what interest rate columns and (b) to what number of periods you would refer in looking up the discount rate.

(1) In Table 3 (present value of 1):

Annual Rate

Number of
Years Involved

Discounts
per Year

(a)

(b)

(2) In Table 4 (present value of an annuity of 1):

Annual Rate

Number of
Years Involved

Number of
Payments Involved

Frequency of
Payments

(a)

(b)

Annual Rate

Number of
Years Involved

Discounts
per Year

Case A 12% 7 Annually Case B 8% 11 Annually Case C 6% 8 Semiannually

Explanation / Answer

1)

Note : Case C - Semiannually

Interest Rate = 6%*1/2 = 3%

Period = 8*2 = 16

2)

Note : Case C - Semiannually

Interest Rate = 8%*1/2 = 4%

Period = 5*2 = 10

(a) (b) Case A 12% 7 periods Case B 8% 11 periods Case C 3% 16 periods

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