Problem I: Using the appropriate present value table and assuming a 10% annual i

Question

Problem I: Using the appropriate present value table and assuming a 10% annual interest rate, determine the present value on Decem ber 31, 2016, of a five-period annual annuity of $10,000 under each of the following situations: December 31, 2017, and interest is compounded annually. 2. The first payment is received on December 31, 2016, and interest is compounded annually. After calculating your answer for each situation, create a table to show that the amount calculated plus annual interest at 10% is just enough money to pay out the five payments of $10,000 each.

Explanation / Answer

1. Present value = Annual payment x PV10%,5

= $10000 x 3.790786

= $37908

Amortization table

2. Present value = Annual payment x PVAD10%,5

= $10000 x 4.169865

= $41699

Amortization table

Year Interest Principal Amt O/s 1 $3791 $6209 $31699 2 3170 6830 24869 3 2487 7513 17356 4 1736 8264 9092 5 908 9092 -

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