Chapter 6, #10 Suppose you are going to receive $14,200 per year for six years.

Question

Chapter 6, #10

Suppose you are going to receive $14,200 per year for six years. The appropriate interest rate is 9.3 percent.

What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Present Value of an ordinary annuity: PV = Pmt x ((1-((1+r)-n )) / r)

Payment per period (PMT) = $14,200
Discount Rate per period= 9.3%
Number of periods (n) = 6

PV = $14,200 x ((1-((1+0.093)-6)) / 0.093) = $63,134.29

Present Value of an annuity due: PV = Pmt x ((1-((1+r)-n )) / r) x (1+r)

PV = $14,200 x ((1-((1+0.093)-6)) / 0.093) x 1.093 = $69,005.78

Future Value of an ordinary annuity: FV = Pmt x ((1+r)n -1))/r)

FV = $14,200 x ((1+0.093)6 -1))/0.093) = $107,643.12

Future Value of an annuity due: FV = Pmt x ((1+r)n -1))/r) x (1+r)

FV = $14,200 x ((1+0.093)6 -1))/0.093) x 1.093 = $117,653.93

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