nvestment X offers to pay you $4,200 per year for seven years, whereas Investment Y offers to pay you $6,300 per year for four years. (Use a Financial calculator to arrive at the answers. Round "PV Factor" to 3 decimal places. Round the final answers to 2 decimal places.)
Calculate the present value for Investment X and Y if the discount rate is 6 percent.
X
Y
Calculate the present value for Investment X and Y if the discount rate is 16 percent.
X
Y
a) Calculation of present value for Investment X and Y if the discount rate is 6 percent.
We have
Present value of Annuity = A*[(1-(1+r)-n)/r]
Where
A - Annuity payment
r - rate per period
n - no. of periods
Present value for Investment X = 4200*[(1-1.06-7)/.06]
= 4200 * 5.582
= $23,444.40
Present value for Investment Y = 6300*[(1-1.06-4)/.06]
= 6300 * 3.465
= $21,829.50
b) Calculation of present value for Investment X and Y if the discount rate is 16 percent.
Present value for Investment X = 4200*[(1-1.16-7)/.16]
= 4200 * 4.039
= $16,963.80
Present value for Investment Y = 6300*[(1-1.16-4)/.16]
= 6300 * 2.798
= $17,627.40
note: 1-(1+r)-n)/r is called PV Factor
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