Exercise 6-5 Using the appropriate interest table, compute the present values of
ID: 2539621 • Letter: E
Question
Exercise 6-5 Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods. Click here to view factor tables $53,230 receivable at the end of each period for 8 periods compounded at 12%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Present value Click here to view factor tables $53,230 payments to be made at the end of each period for 18 periods at 9%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value Click here to $53,230 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present valueExplanation / Answer
Solution:
1)
Amount receivable at the end of each period = $53,230
Periods (n) = 8
Interest Rate (R) = 12%
This is the problem of Ordinary Annuity. Under ordinary annuity transaction incurred at the end of each period and for a specified time
Present Value Factory for ordinary annuity = (1 – (1+R)n) / R
= (1 – 1/(1+0.12)8) / 0.12
= 4.96764
Present Value = $53,230 * 4.96764 = $264,427
2)
Amount receivable at the end of each period = $53,230
Periods (n) = 18
Interest Rate (R) = 9%
Present Value Factory for ordinary annuity = (1 – (1+R)n) / R
= (1 – 1/(1+0.09)18) / 0.09
= 8.75563
Present Value = $53,230 * 8.75563 = $466,062
3)
A
B
A*B
Year
Payable
PV factor @ 12%
Present Value
0
0.89286
$0.00
1
0.79719
$0.00
2
0.71178
$0.00
3
0.63552
$0.00
4
0.56743
$0.00
5
0.50663
$0.00
6
0.45235
$0.00
7
$53,230
0.40388
$21,498.53
8
$53,230
0.36061
$19,195.27
9
$53,230
0.32197
$17,138.46
10
$53,230
0.28747
$15,302.03
$73,134
Present Value = $73,134
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A
B
A*B
Year
Payable
PV factor @ 12%
Present Value
0
0.89286
$0.00
1
0.79719
$0.00
2
0.71178
$0.00
3
0.63552
$0.00
4
0.56743
$0.00
5
0.50663
$0.00
6
0.45235
$0.00
7
$53,230
0.40388
$21,498.53
8
$53,230
0.36061
$19,195.27
9
$53,230
0.32197
$17,138.46
10
$53,230
0.28747
$15,302.03
$73,134