Question 9 (of 100) [save & Exit | Submit ! 9. 1.00 points Problem 5-38 Present

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Question 9 (of 100) [save & Exit | Submit ! 9. 1.00 points Problem 5-38 Present Value and Interest Rates [LO 1 Suppose you just bought an annuity with 11 annual payments of $15,100 at the current interest rate of 10.25 percent per year. What is the value of the investment at the current interest rate of 10.25 percent? (Do not round intermedlate calculations and round your answer to 2 decimal places, e.g, 32.16.) Value of investment What happens to the value of your investment if interest rates suddenly drop to 5.25 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g, 32.16. Value of investment $ What happens to the value of your investment if interest rates suddenly rise to 15.25 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of investment s References eBook& Resources

Explanation / Answer

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

1.Present value=$15100[1-(1.1025)^-11]/0.1025

=$15100*6.420976867

=$96956.75(Approx).

2.Present value=$15100[1-(1.0525)^-11]/0.0525

=$15100*8.198423251

=$123,796.19(Approx)

Hence increase in value of investment =$123,796.19-$96956.75

=$26839.44(Approx).

3.Present value=$15100[1-(1.1525)^-11]/0.1525

=$15100*5.181182347

=$78235.85(Approx)

Hence decrease in value of investment =$96956.75-$78235.85

=$18720.90(Approx).

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