Suppose you are going to receive $14,000 per year for 6 years. The appropriate i

Question

Suppose you are going to receive $14,000 per year for 6 years. The appropriate interest rate is 10 percent per year.

A)What is the present value of the payments if they are in the form of an ordinary annuity (cash flow starts at the end of the first compounding period)?

B)

What is the present value if the payments are an annuity due (cash flow starts at the beginning of the first compounding period)?

C)Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an ordinary annuity?

D)Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an annuity due?

What is the present value if the payments are an annuity due (cash flow starts at the beginning of the first compounding period)?

C)Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an ordinary annuity?

D)Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an annuity due?

Explanation / Answer

A) Present value of ordinary annuity =

B) Present Value of the annuity Due:

C) Future Value of Ordinary annutiy

Cash flow starts at the end of the year

D) Future value of the annuity due

Hope this helps

n = Year cash flow PV factor = (1+R)^n cash flow * PV factor 1 $ 14,000.00 1.100 $                    12,727.27 2 $ 14,000.00 1.210 $                    11,570.25 3 $ 14,000.00 1.331 $                    10,518.41 4 $ 14,000.00 1.464 $                      9,562.19 5 $ 14,000.00 1.611 $                      8,692.90 6 $ 14,000.00 1.772 $                      7,902.64 Present value of ordinary annutiy $                    60,973.65

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