Find the present value of the following ordinary annuities . Round your answers

Question

Find the present value of the following ordinary annuities. Round your answers to the nearest cent. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in many situations, to see how changes in input variables affect the output variable. Also, note that you can leave values in the TVM register, switch to Begin Mode, press FV, and find the FV of the annuity due.)

Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A: Ordinary Annuity:

1)

Nper = 10 (indicates the period)

PMT = 400 (indicates the annual amount of deposit)

Rate = 10% (indicates the rate of interest)

FV = 0 (indicates future value, if any)

PV = ? (indicates the present value)

Present Value (PV) = PV(Rate,Nper,PMT,FV) = PV(10%,10,400,0) = $2457.83

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2)

Nper = 5 (indicates the period)

PMT = 200 (indicates the annual amount of deposit)

Rate = 5% (indicates the rate of interest)

FV = 0 (indicates future value, if any)

PV = ? (indicates the present value)

Present Value (PV) = PV(Rate,Nper,PMT,FV) = PV(5%,5,200,0) = $865.90

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Part B:

1)

Nper = 10 (indicates the period)

PMT = 400 (indicates the annual amount of deposit)

Rate = 10% (indicates the rate of interest)

FV = 0 (indicates future value, if any)

Type = 1 (indicates annuity due)

PV = ? (indicates the present value)

Present Value (PV) = PV(Rate,Nper,PMT,FV,Type) = PV(10%,10,400,0,1) = $2703.61

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2)

Nper = 5 (indicates the period)

PMT = 200 (indicates the annual amount of deposit)

Rate = 5% (indicates the rate of interest)

FV = 0 (indicates future value, if any)

Type = 1 (indicates annuity due)

PV = ? (indicates the present value)

Present Value (PV) = PV(Rate,Nper,PMT,FVType) = PV(5%,5,200,0,1) = $909.19

Thanks.

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