Question

Suppose you are going to receive $23,000 per year for 9 years. The appropriate interest rate is 12 percent. |

a. |
What is the present value of the payments if they are in the form of an ordinary annuity? |

b. |
What is the present value if the payments are an annuity due? |

c. |
Suppose you plan to invest the payments for 9 years, what is the future value if the payments are an ordinary annuity? |

d. |
Suppose you plan to invest the payments for 9 years, what is the future value if the payments are an annuity due? |

Answer #1

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

=23000*[1-(1.12)^-9]/0.12

=23000*5.32824979

**=$122549.75(Approx)**

b.Present value of annuity due=Present value of annuity*(1+rate)

=122549.75*1.12

**=$137255.71(Approx)**

c.Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=23000*[(1.12)^9-1]/0.12

=23000*14.7756563

**=$339840.1(Approx)**

d.Future value of annuity due=Future value of annuity*(1+rate)

=339840.1*1.12

**=$380620.91(Approx)**

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