Question

You are scheduled to receive annual payments of $21,400 for each of the next 23 years. Your discount rate is 8 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

Answer #1

We know that, there are two types of annuities, Ordinary Annuity and Annuity Due. Annuity ordinary is when the payments are made at the end of each yera and Annuity Due is when the payments are made at the beginning of each year.

Given that,

A = $21,400

n(no. of years) = 23

i(discount rate) = 8% = 0.08

PVA(ordinary) = A*(1/i - 1/(i(1+i)^n)

substituting above values gives us

PVA (ordinary) = $221,940

PVA (due) = [A*(1/i - 1/(i(1+i)^n)] *(1+i)

substituting above values gives us

PVA (due) = $239,695

Annuity due will have greater cash flow because payments are received one year sooner.

The difference is thus of $17,755

You are scheduled to receive annual payments of $9,400 for each
of the next 27 years. The discount rate is 7.0 percent. What is the
difference in the present value if you receive these payments at
the beginning of each year rather than at the end of each
year?
$9,400.00
$7,887.25
$8,288.63
$9,001.91
$10,058.00

You are scheduled to receive annual payments of $4,000 for each
of the next 8 years. The discount rate is 8 percent
What is the theoretical relation between the present value if
you receive these payments at the beginning of each year and the
present value if you receive these payments at the end of each
year? (Write the equation)

You will receive annual payments of $5,000 at the end of each
year for 10 years, but the first payment will be received in year
3. What is the present value of these payments if the discount rate
is 8 percent? $30,260.49 $26,633.40 $28,251.12 $24,387.13

You will receive annual payments of $5,000 at the end of each
year for 10 years, but the first payment will be received in year
3. What is the present value of these payments if the discount rate
is 6 percent?
$30,898.36
$24,387.13
$26,260.49
$28,251.12

You will receive annual payments of $5,000 at the end of each
year for 10 years, but the first payment will be received in year
3. What is the present value of these payments if the discount rate
is 6 percent?
$30,898.36
$24,387.13
$26,260.49
$28,251.12

Mike is scheduled to receive payments of $1,200 each month for
the next 2 years, with the first payment beginning today. How much
can Mike expect to have at the end of year 2 if he is able to
invest these cash flows at a rate of 8% assuming monthly
compounding?
A.
$31,327.29
B.
$31,119.83
C.
$2,496.00
D.
$80,117.71

You are set to receive an annual payment of $11,300 per year for
the next 19 years. Assume the interest rate is 6.2 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?

John Smith will receive annual payments of $800 at the end of
each year for 12 years. The first payment will be received in year
4. What is the present value of these payments if the discount rate
is 7 percent?

You are set to receive an annual payment of $11,900 per year for
the next 15 years. Assume the interest rate is 6.8 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
$7,230.88
$6,647.75
$7,837.34
$7,464.14
$6,997.63

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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