Question

- How does the future value, ordinary annuity, compounding periods and rate of return affect the discounted present value, respectively, if other things remain unchanged?

Answer #1

Present value of an ordinary annuity =

Where, P = periodic payment, r=annual interest rate

n = compounding periods.

1. Future value - **increase in future value will increase
in discounted present value.**

2. Ordinary annuity - if we shift from ordinary annuity to
annuity due the **discounted present value will
increase** since now one period is less discounted
overall.

3. Compounding periods - increase in n (compounding periods)
will **increase the discounted present value.**

4. Interest rate - increase in r (interest rate) will
**decrease the discounted present value.**

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For any discount rate, the future value of an ordinary annuity
factor for n periods is equal to the future value of an annuity due
factor for n minus 1 periods plus 1.

Future Value of an Annuity for Various Compounding Periods Find
the future values of the following ordinary annuities. FV of $200
each 6 months for 4 years at a nominal rate of 8%, compounded
semiannually. Do not round intermediate calculations.
Round your answer to the nearest cent. $ 2127.33 **incorrect**
why is this wrong?
FV of $100 each 3 months for 4 years at a nominal rate of 8%,
compounded quarterly. Do not round intermediate calculations. Round
your answer to...

Present Value for Various Compounding
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Find the present value of $500 due in the future under each of
the following conditions. Do not round intermediate calculations.
Round your answers to the nearest cent.
9% nominal rate, semiannual compounding, discounted back 5
years.
$
9% nominal rate, quarterly compounding, discounted back 5
years.
$
9% nominal rate, monthly compounding, discounted back 1
year.
$

Present Value for Various Compounding
Periods
Find the present value of $775 due in the future under each of
the following conditions. Do not round intermediate calculations.
Round your answers to the nearest cent.
15% nominal rate, semiannual compounding, discounted back 5
years.
$
15% nominal rate, quarterly compounding, discounted back 5
years.
$
15% nominal rate, monthly compounding, discounted back 1
year.
$

Present Value for Various Compounding Periods
Find the present value of $425 due in the future under each of
the following conditions. Do not round intermediate calculations.
Round your answers to the nearest cent.
6% nominal rate, semiannual compounding, discounted back 5
years
$
6% nominal rate, quarterly compounding, discounted back 5
years
$
6% nominal rate, monthly compounding, discounted back 1
year
$

Present value of an ordinary annuity and annuity due.
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods
10 Periods
11 Periods
Future Value of 1
1.99900
2.15892
2.33164
Present Value of 1
.50025
.46319
.42888
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Present value of an ordinary annuity and annuity due. (Show your
work)
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods 10
Periods 11 Periods
Future Value of
1
1.99900
2.15892
2.33164
Present Value of
1
.50025
.46319 ...

An ordinary annuity has an interest rate of 10% and a future
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Find the present value of $300 due in the future under each of
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years. Round your answer to the nearest cent.
$
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$
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Round your answer to the nearest cent.
$
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to the nearest cent.
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$
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$
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$
Rework previous parts assuming that they are annuities
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$
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