Question

Please Solve with using BA2Plus Financial calculator. Show step by step.

Question 6 – PV, Ordinary Annuity, Compounding [2 points]: Find the present value of the following ordinary annuities:

a) PV of $300 each six months for five years at a simple rate of 12 percent, compounded semiannually

b) PV of $150 each three months for five years at a simple rate of 12 percent, compounded quarterly

Answer 1

a). For an annuity of

6 monthly payment of $300

interest rate of 12% compounded semiannually

5 years time horizon,

Present value is calculated on financial calculator using following values:

PMT = 300

FV = 0

N = 2*5 = 10

I/Y = 12/2 = 6

Compute for PV, we get PV = -2208.03

So, present value of this annuity is $2208.03

b). For an annuity of

quarterly payment of $150

interest rate of 12% compounded semiannually

5 years time horizon,

Present value is calculated on financial calculator using following values:

PMT = 150

FV = 0

N = 4*5 = 20

I/Y = 12/4 = 3

Compute for PV, we get PV = -2231.62

So, present value of this annuity is $2231.62