| 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? |
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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