Question

Answer the following questions: What happens to the future value of some fixed dollar amount invested today as the interest rate decreases? Why? What happens to the present value of some fixed dollar amount to be received in the future as the interest rate increases? Why? What happens to the present value of some fixed dollar amount to be received in the future as the time to receive the money decreases? Why? Which will have a higher present value, assuming the same discount rate, same # of payments, and same amount of payments, an ordinary annuity or an annuity due? Why? Which will have a higher future value, assuming the same discount rate, same # of payments, and same amount of payments, an ordinary annuity or an annuity due? Why?

Answer #1

1: Future value of a fixed dollar amount decrease with a decline in interest rates. This is because Future value = Present value*(1+rate)^n. The compounding rate decreases and so the future value reduces.

2: Present value of a fixed amount to be received in future decreases as interest rate increases. This is because the present value is computed by discounting future cash flows.

3: The present value of amount to be received in future increases as the time decreases. This is because discounting reduces. Present value = Future value/ (1+rate)^n as the value of n is lower, the present value is higher.

4: Annuity due will have a higher present value as it is received earlier than the ordinary annuity. Annuity due is received at the beginning of the period and so will be discounted lesser.

5: Annuity due will have a higher future value since it remains invested for a longer period of time.

Present value of an annuity???Using the values? below, answer
the questions that follow.
Amount of annuity= $8,500 Interest rate= 7% Deposit period?
(years)= 7
a.??Calculate the present value of the? annuity, assuming that
it is: ?
(1) An ordinary annuity. ?
(2) An annuity due.
b.??Compare your findings in parts a?(1) and a?(2). All else
being? identical, which type of
annuity -ordinary or annuity due- yields a higher present?
value? Explain why.

Find the following values:
a. The future value of a lump sum of $6,000 invested today at 9
percent, annual compounding for 7 years.
b. The future value of a lump sum of $6,000 invested today at 9
percent, quarterly compounding for 7 years.
c. The present value of $6,000 to be received in 7 years when
the opportunity cost (discount rate) is 9%, annual compounding.
d. The present value of $6,000 to be received in 7 years when
the...

Which one of the following statements is correct?
a. The future value of an annuity increases when the interest rate
decreases.
b. The present value of an annuity increases when the interest rate
increases.
c. The present value of an annuity is unaffected by the number of
the annuity payments.
d. The future value of an annuity is unaffected by the amount of
each annuity payment.
e, The present value of an annuity increases when the interest rate
decreases.

amount of annuity=30,000 interest rate=8% period (years)=11 a.
calculate the present value of the annuity assuming that it is
(1)an ordinary annuity (2) an annuity due b. compare your findings
in parts a(1) and a(2). all else being identical, which type of
annuity-oridinary or annuity due-yields a higher present value?
explain why

Using the values below, answer the questions that follow:
Amount of annuity
Interest rate
Deposit period (years)
$500
9%
10
Calculate the future value of the annuity, assuming that it is
An ordinary annuity. (0.5 marks)
An annuity due. (0.5 marks)
Compare your findings in parts a(1) and
a(2). All else being identical, which type of
annuity—ordinary or annuity due—is preferable as an investment?
Explain why. (0.5 Marks)

A.Calculate the present value of an annuity of $5,000 received
annually that begins today and continues for 10 years, assuming a
discount rate of 9%.
B. Joan invested $5,000 in an interest-bearing account earning
an 8% annual rate of interest compounded monthly. How much will the
account be worth at the end of 5 years, assuming all interest is
reinvested at the 8% rate?
C. Calculate the present value of an ordinary annuity of $5,000
received annually for 10 years,...

What is the future value of a 12-year ordinary annuity of $350
if the interest rate is 6.5%? What is the present value of the
annuity? Hint: Solve for PV. What is the future value and present
value if the annuity were an annuity due?

An ordinary annuity has an interest rate of 10% and a future
value of 80.00. What would be the future value of this same
annuity, if it were an annuity due instead of a regular annuity?
The future value of this annuity due is $

Suppose you are going to receive $9,500 per year for five years.
The appropriate interest rate is 11 percent.
a. What is the present value of the payments if
they are in the form of an ordinary annuity? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Present value
$
What is the present value of the payments if the payments are an
annuity due? (Do not round intermediate calculations and
round your answer...

Nalu and Kamaile take-out a mortgage in the amount of $260000 to
purchase an apartment as their principal place of residence. They
are able to obtain a 15-year mortgage at a fixed rate of 6%. Below,
you will be asked for the amount of their monthly payment and for a
aggregated amount of interest that they paid.
Clearly, this is a TVM (time value of money) problem, so get
started by completing the table of "TVM Basic Data"
c
n...

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