Annual payment of $750 for 10 years at 3% interest. (Do not round intermediate c

Question

Annual payment of $750 for 10 years at 3% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual payment of $550 for 15 years at 3% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual payment of $750 for 10 years at 12% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual payment of $550 for 15 years at 12% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Answer a1

Present Value = 750/1.03 + 750/1.03^2 + ... + 750/1.03^10

= 750 / 0.03 * (1-(1/1.03)^10)

= $6,397.65

Answer a2

Present Value = 550/1.03 + 550/1.03^2 + ... + 550/1.03^15

= 550 / 0.03 * (1-(1/1.03)^15)

= $6,565.86

Answer a3

I will opt option 2 as present value of that annuity is more than option 1.

Answer b1

Present Value = 750/1.12 + 750/1.12^2 + ... + 750/1.12^10

= 750 / 0.12 * (1-(1/1.12)^10)

= $4237.67

Answer b2

Present Value = 550/1.12 + 550/1.12^2 + ... + 550/1.12^15

= 550 / 0.12 * (1-(1/1.12)^15)

= $3745.98

Answer b3

I will opt option 1 as present value of that annuity is more than option 2.

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