Problem 5-46 Calculating Annuities Due [LO 1] Suppose you are going to receive $

Question

Problem 5-46 Calculating Annuities Due [LO 1]

Suppose you are going to receive $15,000 per year for five years. The appropriate interest rate is 10 percent.

a. 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.)

Present value            $

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

Present value            $

b. Suppose you plan to invest the payments for five 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.)

Future value            $

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.)

Future value            $

c. Which has the higher present value, the ordinary annuity or annuity due?

(Click to select)Annuity dueOrdinary annuity

Which has the higher future value?

Explanation / Answer

a Present value $    56,861.80 =PV(10%,5,-15000) Present value $    62,547.98 =PV(10%,5,-15000,,1) b Future value $    91,576.50 =FV(10%,5,-15000) Future value $ 100,734.15 =FV(10%,5,-15000,,1) c Annuity due has higher value.

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