Question

You are set to receive an annual payment of $12,200 per year for the next 18...

You are set to receive an annual payment of $12,200 per year for the next 18 years. Assume the interest rate is 7.1 percent. How much more are the payments worth if they are received at the beginning of the year rather than the end of the year?

Multiple Choice

  • $8,650.65

  • $8,380.31

  • $7,704.48

  • $8,109.98

  • $9,083.18

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Answer #1

Ans $8,650.65

Annuity PV Factor (End of Year) = P [ 1 - ( 1 + r )-n ]
        r
12200* [ 1 - ((1 / (1 + 7.1%)^18))]
                 7.1%
8650.64568
0.071
121840.08
Annuity PV Due (Beginning)= P + P [ 1 - ( 1 + r )-(n-1) ]
                       r
12200 + 12200 * ( 1 - ((1 / (1 + 7.1%)^(18-1))))/ (7.1%)
130490.7257
Difference = 130490.73 - 121840.08
8650.65
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