nstructor Save Ext n 8 of 15 Check My Work Video 10-8 Determining an Advance Pay
ID: 2520936 • Letter: N
Question
nstructor Save Ext n 8 of 15 Check My Work Video 10-8 Determining an Advance Payment Katie Davis is contemplating paying five years' rent in advance. Her annual rent is $12,600 Note: The following Table 2 on present value may be used where appropriate to solve this problem Calculate the single sum that would have to be paid now for the advance rent. Assume compound interest of 8 percent. Round your answer to the O35s598.54 An ordinary annuity is a series of equal payments or receipts that will begin one time period from the current date Example Vickie Long has sold a piece of property and is to receive $18,000 in three equal annual payments of $6,000 beginning one year from today, What is the present value of this sale if the current interest rate is 5 percent? Refer to Table 2 in Appendix C. The point at which the 5 percent column intersects the row for period 3 shows a fector of 2.723, which is the sum of the three present value factors in the table above (o.952+0.907+0.864-2.723). When muitiplied by $1, this factor gives the present value of a series of three $1 payments (spaced one year apart) at compound interest of s percent. Thus, we solve the problem as follows. Payment: $6,000 Payment: $6,000 Payment: $6,000Explanation / Answer
The amount that would have to be paid now for advance rent = Present value of annual rent for 5 years at 8 %
= Annual rent * PVIFA (8 % , 5 years)
= $12,600 * 3.993 = $5,0311.80
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