Annual payment of $1,000 for 10 years at 5% interest. (Do not round intermediate
ID: 2780988 • Letter: A
Question
Annual payment of $1,000 for 10 years at 5% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Annual payment of $800 for 15 years at 5% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Annual payment of $1,000 for 10 years at 20% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Annual payment of $800 for 15 years at 20% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Calculate the present value of the following:Explanation / Answer
a-1 Annual payment of $1000 for 10 years at 5% interest Present Value = Future value/ ((1+r)^t) where r is 5% and t is the time period cash flow Year 1 2 3 4 5 6 7 8 9 10 future payment 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 present value 952.38 907.03 863.84 822.70 783.53 746.22 710.68 676.84 644.61 613.91 sum of present values 7722 a-2 Annual payment of 800 for 15 years at 5% interest Present Value = Future value/ ((1+r)^t) where r is 5% and t is the time period cash flow Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 future payment 800 800 800 800 800 800 800 800 800 800 800 800 800 800 800 present value 761.90 725.62 691.07 658.16 626.82 596.97 568.55 541.47 515.69 491.13 467.74 445.47 424.26 404.05 384.81 sum of present values 8304 a - 3 800 for 15 years at 5% has a higher present value, so I would prefer that one. b-1 Annual payment of 1000 for 10 years at 20% interest Present Value = Future value/ ((1+r)^t) where r is 20% and t is the time period cash flow Year 1 2 3 4 5 6 7 8 9 10 future payment 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 present value 833.33 694.44 578.70 482.25 401.88 334.90 279.08 232.57 193.81 161.51 sum of present values 4192 b-2 Annual payment of 800 for 15 years at 20% interest Present Value = Future value/ ((1+r)^t) where r is 20% and t is the time period cash flow Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 future payment 800 800 800 800 800 800 800 800 800 800 800 800 800 800 800 present value 666.67 555.56 462.96 385.80 321.50 267.92 223.27 186.05 155.05 129.20 107.67 89.73 74.77 62.31 51.92 sum of present values 3740 b-3 1000 for 10 years at 20% has a higher present value, so I would prefer that one.
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