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Suppose you are going to receive $9,000 per year for 6 years. The appropriate interest rate...

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Finance

Suppose you are going to receive $9,000 per year for 6 years.The appropriate interest rate is 9 percent.

a. What is the present value of the payments if they are in theform of an ordinary annuity?

b. What is the present value if the payments are an annuitydue?

c. Suppose you plan to invest the payments for 6 years, what isthe future value if the payments are an ordinary annuity?

d. Suppose you plan to invest the payments for 6 years, what isthe future value if the payments are an annuity due?

Answer & Explanation Solved by verified expert
4.3 Ratings (722 Votes)

a. Present value $ 40,373.27
Working:
Present value of ordinary annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.09)^-6)/0.09 i 9%
= 4.48591859 n 6
Present value of annuity = Annuity x Present value of annuity of 1
= $         9,000 x 4.485919
= $ 40,373.27
b. Present value $ 44,006.86
Working:
Present value of annuity due of 1 = ((1-(1+i)^-n)/i)*(1+i) Where,
= ((1-(1+0.09)^-6)/0.09)*(1+0.09) i 9%
= 4.88965126 n 6
Present value of annuity = Annuity x Present value of annuity of 1
= $         9,000 x 4.889651
= $ 44,006.86
c. Future value $ 67,710.01
Working:
Future value of ordinary annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.09)^6)-1)/0.09 i 9%
= 7.52333456 n 6
Future value of annuity = Annuity x Future value of annuity of 1
= $         9,000 x 7.523335
= $ 67,710.01
d. Future value $ 73,803.91
Working:
Future value of annuity due of 1 = ((((1+i)^n)-1)/i)*(1+i) Where,
= ((((1+0.09)^6)-1)/0.09)*(1+0.09) i 9%
= 8.20043468 n 6
Future value of annuity = Annuity x Future value of annuity of 1
= $         9,000 x 8.200435
= $ 73,803.91

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Transcribed Image Text

Suppose you are going to receive $9,000 per year for 6 years.The appropriate interest rate is 9 percent.a. What is the present value of the payments if they are in theform of an ordinary annuity?b. What is the present value if the payments are an annuitydue?c. Suppose you plan to invest the payments for 6 years, what isthe future value if the payments are an ordinary annuity?d. Suppose you plan to invest the payments for 6 years, what isthe future value if the payments are an annuity due?

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